With a year of downturn behind us, all major economic think tanks and forecasters who earlier expected the growth rate to dive below 6 per cent, are hopeful of above 6 per cent growth in 2009-10 (it was 6.7 per cent last year) and a growth of around 7 per cent in 2010-11. Such a rate of growth would be one of the highest in the world.
Most of them expect the growth in Gross Domestic Product (GDP) to be 6-6.5 per cent for the second quarter ended September, primarily guided by improvement in manufacturing and the services sectors. The government would be releasing the GDP figures for the second quarter on Monday. The economy had grown by 6.1 per cent in the first quarter of the current financial year.
The upward revision of earlier forecasts for the full year comes even as India suffered its the worst drought in 17 years, estimated to pull down agricultural GDP in the worst case scenario by 2.5 percentage points. Among those who have increased their forecast for 2009-10 and 2010-11 are international agencies like Asian Development Bank, DSP Merrill Lynch, Standard and Poor’s, and its group company, Crisil India, and Moody’s.
| FORECASTS | ||||
| GDP growth in per cent | Earlier forecast 2009-10 | Revised forecast 2009-10 | Earlier forecast 2010-11 | Revised forecast 2010-11 |
| ADB | 5.0 | 6.0 | 6.5 | 7.0 |
| DSP Merrill Lynch | 5.30 | 6.30 | 7.1 | 7.3 |
| Moody's | 6.20 | 6.40 | 7 | 7.2 |
| S&P (Crisil) | 5.80 | 6.30 | NA | NAa |
| CMIE | 5.80 | 6.20 | NA | NA |
Most forecasters say the upgrades are a result of increased government spending, which led to speedy industrial recovery. Even so, the double-digit growth in industrial output was unanticipated. Industrial output grew by 10.4 per cent in August and for the second quarter, averaged 9.1 per cent.
“It’s not as if India has passed the test. The adverse impact of agriculture is still a cause of concern. But the growth prospects look better than before. For the second quarter, we expect the growth rate to be around 6.2-6.3 per cent. The third quarter might be less, due to agriculture, but overall we are looking at above 6 per cent growth rate,” said D K Joshi, director and principal economist of Crisil India, the research and ratings agency.
Even as the second and the third quarter are supposed to bear the brunt of decline in foodgrain production, overall growth levels hover in the range of 6.1-6.5 per cent.
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“Our full-year growth estimates for FY10 and FY11 are 6.5 per cent and 7.5 per cent, respectively. The second quarter GDP in FY10, by our estimates, is at 6.3 per cent, with strong support coming from a rebounding industry (9.3 per cent) and resilience in services (8 per cent). We expect agriculture to contract in Q2, based on a sharp decline in kharif output ,” said Shubhada M Rao, chief economist of YES Bank Ltd. The kharif output, by the first advance estimate, has declined by 18.7 per cent compared to that in 2008.
While most believe India’s growth of 6-7 per cent in the next two years is a sustainable one, they also state that the challenges for the economy still remain.
“IIndia should do much better than a 6 per cent growth, but some hurdles remain. Moreover, as credit offtake continues to be weak, the recovery is not very deep. Global performance will also have to be a factor in India’s growth prospects. To come (back) to the 9 per cent level, India will have to wait for three-four years,” added Joshi.
“A more than 6 per cent growth seems to be reasonable to many. The sectors that might lag are agriculture and power. The fiscal deficit will also emerge as a concern, going ahead. Even then, I believe our economy has been quite resilient,” said Sumita Kale, chief economist with Indicus Analytics.
Rao adds that on the monetary policy side, rising food inflation is making policy options complex. ”We expect liquidity tightening measures like a hike in CRR (by 50 bps) to precede tightening of policy rates. We expect repo and reverse repo to remain steady till the end of the current fiscal year,” added Rao.