New Delhi: The government’s statistics office on Friday presented a panoramic view of the smooth road the Indian economy has left behind as it heads for into a rough patch that could stretch for several years.
The so-called quick estimates for 2007-08 of national output, spending, saving and investment put out by the Central Statistical Organization (CSO), the country’s top data-collecting body, peg growth in gross domestic product (GDP) —or the value of national output—at constant prices at 9%. Investment and savings as a percentage of GDP were a record 39.1% and 37.7%, respectively. The sequence of economic data released by CSO is: provisional, quick and final.
Fiscal year 2007-08 is likely to mark the end of an unprecedented five-year economic boom that saw national output expand at an average rate of 8.84%, leading to higher incomes. India’s record economic expansion was aided by a strong global economy and easy money.
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Reserve Bank of India governor D. Subbarao had on Tuesday said that economic growth in the current fiscal would be 7% with a downward bias.
The International Monetary Fund (IMF) had forecast that India’s growth in calendar 2009 would be 5.1%.
It could take as long as five years for the economy to revert to a 9% growth trajectory, said Manoj Vohra, director, research, Economist Intelligence Unit.
“We don’t expect to see a convincing 9% (growth) for the next five years. I must qualify it by saying India is not alone,” Vohra said
India’s GDP in 2007-08 was an estimated Rs28.71 trillion at constant prices, which corrects for inflation, and Rs43.20 trillion at market prices.
Economic growth in the current year and most likely next year is forecast to drop by 2 percentage points or more and will thereby affect growth of average incomes, which doubled in seven years to Rs33,283 in 2007-08.
“Right now we are completely depending on domestic factors (for growth). Given that, I don’t expect 9% for at least two years,” N.R. Bhanumurthy, associate professor at New Delhi-based research institution, Institute of Economic Growth, said.
Friday’s data was the most comprehensive set of number released for 2007-08.
The statistics included a break-up on private final consumption expenditure—an indication of consumer spending trends. Spending on food, beverages and tobacco continued to be the largest chunk of household budgets, at about 42%, in recent years.
However, the fastest growing components of household spending were linked to the service sector, such as health care, communications and education.
Consumers tend to spend relatively less of food and more on health care and education as their incomes increase.
According to D.K. Joshi, principal economist and director at credit rating agency Crisil Ltd, the services slowdown would feed into consumption expenditure of some fast-growing items such as hotels and transportation.
In the second quarter of 2008-09, services grew 9.6% after 14 consecutive quarters of double digit growth.
Private consumption expenditure on durables (under the category furniture, furnishings, appliances and services) grew from 3.3% to 4% of the Rs26.05 trillion consumption expenditure in the domestic market in the eight-year period ended 31 March.
During the same period, transportation and communication expenditure grew from 13.1% to 17% of the total, and hotel expenditure from 1.8% to 2.8%.
All these sectors are likely to be affected during the current slowdown, Crisil’s Joshi said.
Some items of private consumption linked to services might, however, be insulated from a slowdown, he added.
Joshi identified consumption expenditure on education, healthcare and communication as items where there is unlikely to be noticeable impact in the current year and the next one.