Q3 growth of 10.4% may not hold up

Prof B B Bhattacharya, director of the Institute of Economic Growth (IEG) pointed out that the third quarter growth rate of 10.4 per cent is hardly any indication for the economy. “Normalised, the growth rate works out to 6 per cent which is sustainable,” Bhattacharya said and went on to add that “even for an 8 per cent growth we need an investment rate of around 27 per cent which would need time”. In fact, Prof Manmohan Agarwal, professor of economics at the JNU was in agreement with Prof Bhattacharya. According to Prof Agarwal, with the present investment rate of 20-23 per cent, such high growth rates were not sustainable at all.

For a 10 per cent growth rate, “we need an investment rate of 35 per cent to 40 per cent and I do not see it happening,” Prof Agarwal added. Both of the economists pointed out that with the present growth rates of 8 to 10 per cent for services and industry the economy might see at best a growth rate of around 6 per cent in the next fiscal.

Saumitra Choudhury, economic advisor in ICRA felt that the third quarter results could hardly be any basis for growth projections of the future. According to him, even for a 8 per cent growth “we need a higher growth rate for the industry which does not seem to be on the agenda.”

“Such a high rate of growth in agriculture is not possible,” Choudhury stated while adding that the high fiscal deficit is an area of concern. “The deficit is pushing private borrowers to the overseas market,” he added.

Prof Abhijit Sen, professor of economics at JNU brushed aside any chances of the 10.4 per cent growth being sustained in the long run. “A 17 per cent growth rate in agriculture is not going to come. At best we would get around 2 to 3 per cent growth in the sector next year and going by the present growth rates in services and industry we would be looking at a growth rate of around 6 per cent in the next fiscal,” Sen added.

Hiranya Mukhopadhay, economist with the Asian Development Bank (ADB) also felt that no way such a growth rate would be sustained. According to him, the next fiscal is expected to see a growth rate of around 6 per cent. Prof Agarwal pointed out that lack of public investment would create problems for the economy. According to him, the present trend of capital inflow clubbed with the appreciation of the rupee needs to be looked into cautiously. It just might be the lull before the storm and “we need to look at it”, he added.