GDP growth of 9.3% for Q1 raises expectations for the yr

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New Delhi, August 31: India’s growth story remains intact. Down by 30 basis points over the previous year’s figure in the same quarter (9.6 per cent), it has not belied expectations. According to Subir Gokarn, chief economist, Standard & Poor, Asia Pacific, “I don’t see any surprises. The momentum of industrial growth in 2006-07 has continued and the Rabi crop has been good. I expect the growth for the year to be around 8.5 per cent.”


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A figure other analysts reflect, give or take 10 basis points or so. “JP Morgan is likely to revise up the full year growth forecast for the year 2007-08 to 8.6 per cent from 8 per cent earlier,” said Rajeev Malik of JP Morgan Chase.

What’s new is the rise in agriculture growth. Accounting for 17.6 per cent of GDP, it grew 3.8 per cent, a rise of 1 percentage point over the previous year’s figure of 2.8 per cent. This is significant.

“We have seen changes like revision of APMC Act by 14-15 states and more budgetary allocation to irrigation and water body management which will boost agriculture,” said Abheek Barua, chief economist, HDFC Bank. “But the current number does not necessarily reflect the structural change from 2.5 per cent level to 3.5-4 per cent level.” So it is yet to be seen, whether this growth rate is sustained in the remaining quarters. “I expect the agriculture growth to be more than 3 per cent,” he said.

Another segment that has seen a sharp growth is electricity, gas and water supply. This chunk has grown to 8.3 per cent from 5.8 per cent in the previous year. But its contribution to India’s GDP is only 2.3per cent, second lowest after mining and quarrying, which has shown a falling growth.

The growth momentum has been mainly sustained by the strong numbers from the trade, hotel, transport and communications, and financing and real estate sector. The segment trade, hotels, transport and communication fell marginally but its contribution to GDP, at 26.8 per cent, is high. The segment also commands the highest growth rate of 12 per cent among all.

Manufacturing, the second fastest growing segment, saw a growth rate of 11.9 per cent. Even though it has declined from the previous year’s 12.3 per cent, its contribution to GDP has risen by 40 basis points to 16 per cent.

The services sector has decelerated and is expected to remain so. As per Barua, “Software and services exports are expected to slowdown because of rupee hike and banking and financial sector on account of slowdown in the credit growth rate. I expect the growth rate to be between 8.5-9 per cent.”

Agricultural output up at 3.8%

Agricultural output growth has increased by 1 percentage point in the first quarter of 2007-08, at 3.8 per cent compared to 2.8 per cent in the same quarter of 2006-07. This is just 20 basis points short of the government’s 4 per cent growth target for the sector.

The government is in investing in targeted programs towards this end. One of the thrust areas has been irrigation and water management, for which Rs 100 crore has been allocated to the National Rainfed Area Authority for watershed development programs. In addition, Area Irrigation Benefit Programme has been revamped and its budget has been increased to Rs 11,000 crore from

Rs 7,121 crore to complete irrigation projects at the earliest.

Even groundwater has been given importance and Rs 1,800 crore has been allocated. Agriculture sector credit has surpassed targets in the past three years and the target has been increased from Rs 1.75 lakh crore to Rs 2.25 lakh crore for 2007-08. An addition of five million farmers to the banking system this year has also been targeted. Regional rural banks have been instructed to open branches in 80 districts not covered by them. A special plan for 31 distressed districts is being implemented at a cost of Rs 16, 979 crore.