New Delhi: An unexpected dip in industrial production in July and August may have lowered India’s economic growth rate to around 7% in the fiscal second quarter ended September, according to the country’s chief statistician, Pronab Sen, signalling a significant deceleration in economic expansion.
At this level, the average rate of growth in the first six months would drop to 7.45%, implying that the economy would have to perform substantially better in the next two quarters for it to achieve the targeted growth rate of 7.7% projected by the Reserve Bank of India, or RBI.
Gross domestic product, or GDP, grew 9.3% in the same quarter a year ago. During the first quarter of the fiscal (April-June) GDP grew 7.9%. The Central Statistical Organisation within the ministry of statistics and programme implementation is scheduled to release the second quarter GDP data on 28 November.
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“GDP growth in the second quarter of the year may be around 7% unless the industrial production data is significantly revised upwards,” Sen told Mint.
During the first two months of the second quarter, the Index of Industrial Production, or IIP, grew 4.3% compared with 9.6% during the corresponding period last year. For July, growth in industrial production was revised to 7.4% from 7.1%. In August, provisional IIP data showed industrial production plummeted to a 10-year low at 1.3%.
Sen said that although agriculture growth may be robust during the second quarter, industry and services sectors may slow. “Indian companies doing back-office work for foreign banks may suffer,” Sen added.
Growth projection: Pronab Sen, chief statistician of India. Harikrishna Katragadda / Mint
A Planning Commission official, who did not want to be named, said agricultural production during the second quarter has been robust. “I expect farm sector to have grown more than 3% during the quarter,” the official added.
Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd, however, said GDP growth will be higher than 7% as private consumption demand had not suffered during the quarter. “I may be a bit optimistic but my sense is that GDP growth during the second quarter will be close to 7.5%. Though industrial production data shows a significant slowdown, there is always a gap between IIP figure and industry growth rate shown on GDP data. These figures may not always be in the same direction,” Joshi said.
A survey of professional forecasters conducted by RBI and released on 3 November also paints a more optimistic picture. The median GDP forecast of the survey for the second quarter is 7.7%, while the forecasts vary in the range of 7.1% to 8.1%.While agriculture is expected to have grown at 3%, growth for industry and services sectors is projected at 6.9% and 9.5%, respectively, during the July-September quarter.
GDP growth in both third and fourth quarters of 2008-09 is projected at 7.6%. For the current fiscal as a whole, GDP is projected to grow at 7.7%, while in 2009-10 it is expected to further slow to 7.5%.