GDP grows 7.7% in Q1; lowest in six quarters

* It is disappointing. There is no room for complacency,says FM.

In the first quarter of 2011-12,the economy grew at 7.7 per cent its slowest pace in 18 months. With high interest rates and soaring inflation putting brakes on India Incs expansion plans,the growth was even lower than the 7.8 per cent growth in the fourth quarter of 2010-11.

It is no doubt disappointing. There is no room for complacency. We shall have to work very hard government,industry and I am confident that our workers and farmers would make their contribution in ensuring growth with inclusion, Finance Minister Pranab Mukherjee said on Tuesday. The GDP data is based on the revamped Index of Industrial Production (IIP) and has resulted in revisions in mining,manufacturing,electricity and trade,hotels and restaurant sectors. Accordingly,the government has also revised downwards the first quarter growth for 2010-11 from 9.3 per cent to 8.8 per cent.

Mining,manufacturing and construction activities showed significant sluggishness in the April to June quarter this year,partly due to the revamped IIP but also because the 11 rate hikes by the Reserve Bank of India since March 2010 have undermined business sentiments. Its clear that we are heading towards a slowdown. It will be a challenging year for growth,which is likely to be below 8 per cent. The fall in mining and construction is the most worrying as they point to a lower industrial growth as well as lesser demand for steel and cement in the next few quarters, said D K Joshi,chief economist at Crisil,adding that the crisis in Europe and the US could further hit the domestic economy.

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In a recent report,the central bank had also warned that if global financial problems amplify and slow down growth markedly,it would impart a downward bias to the growth projection.

The government,however,maintained that the economy would pick up in the next few quarters despite the higher cost of funds. There is a tight liquidity policy and that might have some impact as the cost might have gone up. But,is it principally on account of interest rates or due to demand,it is hard to say, the countrys chief statistician TCA Anant said,adding that the 7.7 per cent growth in the first quarter is consistent with an 8 per cent growth in 2010-11. The Finance Ministry has not revised its 9 per cent (+/- 0.25 per cent) growth forecast for the fiscal and its chief economic adviser Kaushik Basu continued to remain upbeat. You should not get your hopes too high for the immediate next quarter. But I do expect growth in third and fourth quarter of the year to do quite a substantial pick-up, he said. While gross fixed capital formation grew 31.2 per cent in the first quarter of 2011-12 as against 31.4 per cent a year ago,private final consumption expenditure grew 60.5 per cent as against 61.7 per cent a year ago.

During the period under review,services sector,including insurance and real estate,grew by 9.1 per cent against 9.8 per cent in the corresponding period a year ago. Farm output showed an improvement,expanding by 3.9 per cent,compared to 2.4 per cent in the corresponding three-month period last fiscal. The trade,hotels,transport and communications segments grew by 12.8 per cent,up from 12.1 per cent in the period a year ago.