Strong GDP numbers spring a pleasant surprise, even as inflation trends down.
A buoyant 8.9 per cent year-on-year growth in the gross domestic product (GDP) for the first half was above estimates and set the stage for a robust growth rate for the current financial year. However, some of it was derived from an unexpected downward revision of the base (September 2009 quarter) numbers.
In the second half, slowing industrial production and moderating private consumption are expected to impact GDP numbers and pull down the whole-year average marginally. Arun Singh, economist, Dun and Bradstreet (D&B), expects the economy to grow at 8.5 per cent in 2010-11.
The agri and services sectors (9.8 per cent growth) lent momentum to the supply-side growth in the September quarter, with good monsoon supporting agriculture growth of 4.4 per cent year-on-year, albeit over last year’s low base. Industrial sector growth has continued to moderate since end-March, but was stronger-than-expected at 8.9 per cent, despite volatile index of industrial production (IIP) numbers over the last few months.
The GDP growth on the demand side was led by private consumption that expanded 9.3 per cent year-on-year, despite high inflation that averaged around nine per cent. Investment, however, slowed to 11.5 per cent compared to around 19 per cent in the previous quarter, mirroring the volatility in the capital goods production data.
The interest rate outlook continues to be benign for the calendar year, given the tight liquidity situation, reckon economists. However, inflation will be a key guiding factor for the January policy review, according to Crisil’s D K Joshi. Singh expects a 25-basis-point rise in repo and reverse repo rates and a 50-basis-point hike in the cash reserve ratio before the end of 2010-11. Inflation is also expected to dip to six per cent by March 2011, according to the D&B estimates.
However, the surprisingly higher GDP numbers have raised concerns on the quality of data. Based on market prices, Singh expects some downward revision in the demand-side data.
