Economy on a hat-trick

2005-06 set to clock 8.1% growth.

Here is a clutch of numbers to gladden your heart. A day after the Sensex pierced 10,000 points, the government forecast the economy would grow 8.1 per cent in 2005-06, a survey of manufacturing showed nearly half the sectors had clocked over 10 per cent growth in the first three quarters of the year, and another study projected real Indian salaries would rise 13.7 per cent in 2006.

The Central Statistical Organisation forecast the economy would grow 8.1 per cent in 2005-06, up from 7.5 per cent last year but below the 8.5 per cent of 2003-04. The manufacturing and services sectors are leading the way as a 2.3 per cent pick-up in agricultural output this fiscal year spurs demand.

Manufacturing is pegged to grow 9.4 per cent in 2005-06, up from 8.1 per cent last year. A Confederation of Indian Industry-ASCON survey of manufacturing for the first nine months of 2005-06 reported that of the 139 sectors covered, output in 71 grew over 10 per cent. Of the 78 sectors reporting sales, 47 grew over 10 per cent.

And pay hikes are in step. Salaries in India will rise 13.7 per cent in 2006, according to Hewitt Associates. The global human resources services firm said India's average salary increase of between 11.4 per cent and 15.4 per cent in 2005 was the highest in the Asia-Pacific region.

Commenting on the economy, Finance Minister P Chidamabaram said the Sensex crossing 10,000 points and the GDP growth projection of 8.1 per cent was a "heady mix". "The Sensex reflects business confidence and the strong fundamentals of the economy," he said.

Planning Commission Deputy Chairman Montek Singh Ahluwalia went a step further to say the country should now aim at 10 per cent growth. "The 8.1 per cent growth projection has only vindicated what we have been saying all along--that the economy will bounce back," he said.

India remains one of the fastest economies in the world behind China, which grew 9.9 per cent in 2005. Former Chief Economic Adviser Shankar N Acharya said the growth estimates were pretty good.

"It is sort of in the estimated range. The future issue is the sustainability (of this growth rate). A lot will depend on future policies and reforms," he said.

There is a niggling worry, however, among economists about interest rates. The Reserve Bank of India (RBI) raised the reverse repo rate by a quarter point to 5.5 per cent last month, surprising many in the market. The RBI stressed at the time it wanted to keep a lid on inflation expectations and it also highlighted the need to avoid excess growth in credit.

Per capita income in 2005-06 is estimated at Rs 25,788 at current prices, up 11 per cent from the estimated Rs 23,222 for 2004-05.

The vital agricultural sector is forecast to expand a modest 2.3 per cent in 2005-06, but that will be up from the 0.7 per cent gain registered the previous year.

The service sector, accounting for a little more than half of GDP, is also growing at a fast clip. Growth in financing, real estate and business services in 2005-06 is estimated to reach 9.5 per cent, while community, social and personal services is forecast at 7.9 per cent.

Electricity, gas and water supply; construction; trade, hotels, transport and communication; financing, insurance, real estate and business services; and community, social and personal services were the sectors with projected growth rates of over 5 per cent.

The estimated growth for the trade, hotels, transport and communication sectors during 2005-06 is pegged at 11.1 per cent. The index of mining, however, showed a decline from 5.1 per cent last year to 0.6 per cent this year.