GDP growth in Q2 may fall below 9%

A relatively slow performance by the industrial sector and a high base effect may slow down gross domestic product (GDP) growth in the second quarter (July-September) of fiscal 2007-08 to below 9 per cent, feel analysts.

Economic data for the period is scheduled to be announced by the Central Statistical Organisation on November 30.

"Growth in the second quarter may moderate to 8.7 per cent," said DK Joshi principal economist, credit rating agency Crisil.

"We expect growth to continue moderating and may be touch 8.1 per cent in the last quarter of the financial year," he added. Crisil has forecast a growth rate of 8.6 per cent for FY 08.

HDFC Bank chief economist Abheek Barua feels that the GDP growth will be close to 9 per cent. "Growth in the second quarter will be reasonably strong as I feel the real impact of the monetary tightening by the Reserve Bank of India (RBI) will be more prominent starting from the second half of the current financial year. Industrial growth has been a little patchy, but it may still grow at over 9 per cent," Barua said.

The economy grew at 10.2 per cent in the corresponding quarter last year. In the first quarter (April-June) of the current financial year, GDP growth was 9.3 per cent, higher than the 9.1 per cent in January-March quarter, the last of the previous fiscal year.

When asked whether a high base effect will also bring down the growth rate, Joshi said, "That will also have an impact. But there is also a genuine moderation especially in the industry sector".

The Index of Industrial Production grew at around 8 per cent during the second quarter of the current financial year. Analysts feel though there may be some moderation in the industry and agriculture, but these will register robust growth.

"Services sector may grow at around 9.5 to 10 per cent. Only banking and financial services may slow down a bit. However, agricultural growth may remain robust at around 3.5 to 4 per cent growth rate," Barua said.

When asked whether a relatively strong growth could trigger further monetary measures by the RBI, Barua replied in the negative.

"The current growth projections are in line with the RBI's expectation. The Central bank is not so much concerned about the pressure from the demand side as core inflation has remained largely benign. It is more concerned about higher commodity and oil prices getting transferred to the economy at some point of time," he said.

The Central bank hiked the Cash Reserve Ratio, the proportion of deposits banks have to keep with the RBI, by 0.5 percentage points to 7.5 per cent in its mid-term credit review on October 30.