High demand to persist, as govt ups demand side GDP: Experts

The government's upward correction of growth estimates from the demand side for the first quarter of this fiscal have reduced apprehensions that the economy might slow down in the coming months, say experts.

Admitting to error, the government had last week revised the economic growth at market prices (that consumers pay) to 10.02 per cent for the quarter ending June 2010, from 3.65 per cent stated earlier.

However, economic growth, as is measured traditionally from GDP at factor costs or through supply side, was estimated correctly at 8.8 per cent for April-June 2010.

The wrong estimation had led to confusion among economists, who predicted that slowdown in demand will pull down economic growth in the coming months.
    
However they said that after the revision, it no longer seems to be the case.
    
"There is no question of any decline in consumption and we are in fact going to see jump in it during the coming festive and marriage season associated with the third quarter," National Council of Applied Economic Research (NCAER) Chief Statistician Rajesh Shukla told PTI.
    
"This is a natural phenomena and demand will be more in the third quarter," he added.
    
The revised GDP data showed that the private final consumption expenditure (PFCE), which comprises expenses of households and others, had grown by 3.79 per cent during the quarter as against the earlier estimate of 0.34 per cent.
    
Simultaneously, the government final consumption expenditure (GFCE) was revised showing a growth of 14.20 per cent, from the original estimate of 0.59 per cent decline.
    
Shukla said the economy will see a stable growth in the long term.
    
"The response of consumers to inflation has changed and they see to it that high growth and high inflation can go side-to-side. Besides, income levels are also increasing," he said.
    
According to him, though the actual GDP growth in the first quarter has been better than expected, the factor is difficult to explain it by any visible indicator.
    
"On a conservative side, we can hope for an average annual GDP growth of 8.75 per cent from now till 2015. The nine per cent target for economic growth set by government for this fiscal is not a very high figure. It can definitely touch nine per cent," he said.

According to Barclays Capital, the revised figures suggest momentum in the economy.
    
"We think the revised figures corroborate the strong momentum in the industry level GDP. I do not think demand will be a constraint, although it is important to note that 2.8 percentage points out of 10 per cent came from discrepancies," Barclays Capital Regional Economist Rahul Bajoria.
    
Discrepancies mean indirect taxes net of subsidies and are included in calculating GDP from demand side.
    
Asked about the likely rate of growth for the fiscal, Bajoria said: "We are looking for 8 per cent growth for 2010-11, rising to 8.5 per cent in FY11-12. We see modest upside risks to our projections."
    
However, some others cautioned against much hype due to the revised data.
    
"The rise in PFCE is not very strong and it is not a sign of strength in the economy. As for increase in GFCE, it is on account of increased budgetary outlay. To expect that these will continue is not correct. Factor cost will remain same," senior economist, and ex Director of Indian Council for Research on International Economic Relations (ICRIER), Rajiv Kumar said.