A welcome surprise

The Central Statistical Organisation released its advance estimates of GDP for 2004-05 on Monday.

These indicate that GDP for the current year will be 6.9 per cent higher than in the previous year""better than almost all forecasts. With a few notable exceptions on both sides of the range, official and private forecasters had tended to converge to the 6-6.5 per cent range.

Coming on top of the 8.5 per cent growth last year, it is now reasonable to expect that the sustainable rate of growth in India is approaching 7 per cent (compared to less than 6 per cent so far).

This suggests a secular acceleration that has enormously positive implications for the majority of people, who will benefit from this momentum. In short, the India story has just got noticeably better.

What is striking about the performance of the economy over the current year is how strong the momentum has been in all three sectors. Agriculture is estimated to grow at 1.1 per cent over its spectacular rebound of 9.6 per cent last year.

This is despite a 13 per cent deficiency in the south-west monsoons over the country as a whole. The advance crop estimates that were made in September had suggested a decline in the total output of around 7.5 per cent over last year's high base.

The growth of 8.9 per cent in manufacturing comes as reinforcement to the view that Indian manufacturing is making a roaring comeback.

The industrial sector overall (comprising mining, electricity, and construction, besides manufacturing) grew at 7.8 per cent, reflecting a slight slowdown compared to the previous year in mining and construction.

Likewise, the services sector grew at 8.9 per cent, a shade below its last year's performance of 9.1 per cent, but still providing the greatest degree of momentum to overall growth.

Its largest component, trade, hotels, transport and communication, which now comprises over a quarter of aggregate GDP, continued to be the fastest-growing sector, clocking 11.3 per cent growth.

This is the first in a long series of estimates; the next round, called Quick Estimates, will be released about this time next year.

There is no reason why the next round should show slower growth for the year than this one; the quick estimates for 2003-04 actually increased the growth rate from 8.2 to 8.5 per cent.

For 2004-05, the agriculture sector's performance may be scaled up further, to about 1.5 per cent (from 1.1 per cent). Then, the acceleration of manufacturing this year from an already robust performance over the previous two years brings back memories of the industrial boom of the mid-1990s.

In those years, while there was double-digit growth in production, growth in value added was comparable to the numbers being achieved now.

Likewise, services seem to have achieved a virtually unstoppable momentum""and areas like software are in fact gaining further momentum.

The flip side of faster than expected growth, of course, is that the various constraints that we all know will kick in at some point will do so sooner rather than later.

Manufacturing needs power and transport services to sustain its growth; the latter need higher investments on a sustained basis to provide that support.

Even as the UPA government takes credit for sustaining the growth momentum this year, it needs to act far more decisively if it wants to do so in coming years.