India’s economy grew 7.8 per cent in the fourth quarter of 2010-11, the slowest in a year, as rising interest rates and input costs pulled down manufacturing growth to a 21-month low.
While industry chambers attributed this to a tight monetary policy, economists said the Reserve Bank of India (RBI) might continue to make money dearer, unless inflation fell sharply.
For the full financial year, the economy grew 8.5 per cent, as against 8.6 per cent mentioned in the government’s advance estimates. This was made possible by 6.6 per cent agriculture growth, a six-year high, which neutralised slower industrial growth.
“Growth (in the current financial year) will suffer if inflation continues to be high. There may be a little less (growth) if inflationary pressures continue,” said Finance Minister Pranab Mukherjee.
Department of Economic Affairs secretary, R Gopalan, said the finance ministry would lower the growth projection of 9 per cent for this financial year due to high crude oil prices.
In fact, growth in gross fixed capital formation, which can be taken as a sign of investment, has been falling every quarter since the last financial year. It came down to 7.09 per cent in the fourth quarter from 14.55 per cent in the previous quarter, 18.05 per cent in the second quarter and 24.29 per cent in the first quarter.
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The signs of slowdown in industry, particularly manufacturing, are clear. One reason for this is RBI increasing policy rates nine times since July last year.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said, “The real concern is that the quarter-on-quarter growth rate for the last quarter (of 2010-11) has come down a little bit.” He said growth this financial year was likely to be in the range of 8-8.5 per cent.
The Economic Survey had expressed hope the country would be able to revert to the pre-crisis growth rate of nine per cent this year. Now, all eyes are on how the Planning Commission fixes a target of 9-9.5 per cent growth in the 12th Plan, which starts from the next financial year.
YES Bank Chief Economist Shubhada Rao said the data exaggerated the moderation in growth due to a revision in figures of the year-ago quarter.
“The fourth quarter growth rate of 2009-10 is now 9.4 per cent as compared to 8.6 per cent earlier. The adverse impact on this financial year’s fourth quarter data due to the upward revision can be gauged from the fact that the growth rate would have been close to 9 per cent in the quarter if the year-ago figure had remained unchanged,” she said.
Also, demand remains strong. While private consumption grew a strong eight per cent in the last quarter — though lower than 8.6 per cent in the previous quarter — government spending accelerated to 4.9 per cent from 1.9 per cent.
This might create a demand-supply mismatch in times to come, say economists.
In absolute terms, the size of the Indian economy was slightly less at Rs 78.76 lakh crore in the last financial year as compared to Rs 78.78 lakh crore calculated in the advance estimates.
The per capita income was, however, slightly higher at Rs 54,835 last financial year than the estimate of Rs 54,527. This represents a growth rate of 17.9 per cent as against the earlier estimate of 17.3 per cent.
The BSE Sensex rose 271 points to 18,503 today, as investors shrugged off slow economic growth in the fourth quarter and bought on firm global cues. All sectoral indices rose.