Indian economy grew at a better than expected rate of 7.6 per cent in the second quarter ended September 2008, as compared to 9.3 per cent in the year-ago quarter.
Resilience of the services sector, which contributes more than half of the total output, was cited as the major reason for slower deceleration of the economy. In particular, transport and communications sector posted a much better growth rate.
The consensus estimate of economists polled by Business Standard had predicted the growth rate between 7-7.4 per cent. The gross domestic product (GDP) - the sum of goods and services produced in the country - grew at 7.6 per cent in the previous quarter ended June 2008. But experts say that latest numbers does not mean that global financial crisis would not impact India in a big way.
“We would see moderation in the second half (October- March 2009) as momentum in services sector will peter-out especially in transport and hotels”, said D K Joshi, economist with Crisil, a ratings and advisory firm. He now expects Indian economy to post a growth rate of 6- 6.5 per cent in the second half of current fiscal.
On a quarter-on-quarter and year-on-year basis, only one out of eight industry segments posted higher growth rates in the latest numbers released by Central Statistical Organisation (CSO).
However, the growth rate of Gross Fixed Capital Formation (GFCF), which approximates closely to investment made, was much higher than expected at 14 per cent in the second quarter ended September 2008, as compared to 8.95 in the previous quarter.
Economists say that impact of global crisis began to manifest in a significant after September this year, as reflected in 10 per cent dip in exports in October 2008.
“The recession in several major economies now foreshadows a tough time ahead for India,” said Sherman Chan, an economist with Moody’s Economy.com in a recent note.
“Prospects for the December quarter and much of 2009 are grim, and a sharp deceleration in India’s GDP growth is expected in the final three months of this year,” she added.
She predicts growth rate of Indian economy to slow down to less than 7 per cent over the next four quarters. The Asia’s third largest economy had grown in excess of 9 per cent for three years up to March 2009.
In the quarter ended September 2008, agriculture grew at 2.7 per cent as against 4.7 per cent in the year-ago quarter. But manufacturing grew at a much slower pace of 5 per cent as against 9.2 per cent in July-September 2007.
With latest headline inflation also declining marginally, experts and industry leaders are demanding the Reserve Bank of India (RBI) to further reduce the key interest rates, so that overall demand in the economy can be boosted. The government is also preparing a list of infrastructure projects and also fiscal sops to prop up demand, as private investment is projected to slow down significantly.
The central bank has loosened monetary policy by reducing repo rate (the rate at which it lends to commercial banks) from 9 per cent to 7.5 per cent. It also cut cash reserve ratio (CRR) (the money banks keep with RBI) from 9 per cent to 5.5 per cent.
However, the growth will pick up only around July next year, said Saumitra Chaudhuri, member of Prime Minister’s economic advisory council.
