Indias expectations that the economy will grow a healthy 7.1 per cent in the current fiscal suddenly seem unrealistic with the gross domestic product for the October-December 2008 or the third quarter slowing down to a six-year low of 5.3 per cent. The economy grew 8.9 per cent in the corresponding quarter last fiscal.
The lower-than-expected growth rate was largely because of a sharp slide in agricultural output and also a contraction in manufacturing. The farm sector,which has 19 per cent weight in the countrys GDP composition,dipped 2.2 per cent in the third quarter,pulling down the overall GDP growth estimate to 5.3 per cent. In the first two quarters,India grew 7.9 per cent and 7.6 per cent respectively.
The Prime Ministers economic advisory council had estimated third-quarter growth to be around 6.5 per cent and the Central Statistical Organisation had,in its advance estimate,pegged the growth rate for the full fiscal at 7.1 per cent. At present,the overall growth in the first nine months of 2008-09 is falling short of the 7-per cent mark at 6.9 per cent.
For the economy to clock a 7 per cent growth rate this fiscal,it would have to grow by at least 7.3 per cent in the ongoing quarter (January-March),which is highly unlikely. A weaker fourth quarter performance would take the full-year GDP growth rate down to the range of 6-6.5 per cent, Subir Gokarn,chief economist,Standard and Poors Asia Pacific told The Indian Express.
There is,however,a silver lining. The impact of Sixth Pay Commission,the two stimulus packages in December 2008 and January 2009,are yet to play out. Besides,the low inflation rate its at a 15-month low of 3.36 per cent will give the Reserve Bank of India more leeway to pursue aggressive monetary easing in the coming days.
The Bombay Stock Exchange Sensitive Index dropped over 2 per cent during the day on the GDP data but recovered partially to close just 63 points lower at 8,892 points. The rupee fell sharply,closing at 51.10/12 to a dollar as importer demand for the dollar surged following the poor growth figures.
The government,however,assured that the figures are not much of a deviation from expectations. There is still a quarter to go. Even with 5.3 per cent,it still comes around seven per cent,maybe a shade below that, minister of state for finance PK Bansal said. Economic affairs secretary Ashok Chawla,too,expressed confidence and said,It (growth) will add up to close to 7 per cent for the year as a whole. We are not very disappointed.
Manufacturing,on a consistent downturn,fell 0.2 per cent between October and December 2008,while agriculture,which grew at a massive 6.9 per cent in the same quarter last year,fell 2.2 per cent. While the slump in agriculture may be seen as the base effect of last years strong growth,chief statistician of India Pronab Sen disagrees.
He said,A base effect seems improbable. The final estimate for last year was sharply higher than the second estimate. We just have the second estimate as of now for this year. So we cant say what went wrong, he added. Other sectors,however,performed far better compared to agriculture and manufacturing,with two sectors,namely mining and quarrying and community,social and personal services faring better than last year at 5.3 per cent and 17.3 per cent,respectively.