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Business News/ Opinion / Another good year of growth
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Another good year of growth

Another good year of growth

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India has witnessed another year of good growth. Its economy grew by 7.4% in 2009-10 (on a year-on-year basis), compared with an expected 7.2%. This comes against the backdrop of a global economy that continues to wobble from crisis to crisis.

The main features of the fiscal 2010 story were good industrial growth (which stood at 9.3%), something that was consistent throughout the year, and the surprising performance of the agriculture sector (an increase of 0.2%, instead of an expected contraction of 0.2%). Industrial growth came on the back of a low base in the previous year. To peg the story entirely to the base effect would, however, rob the organic nature of this growth. Index of Industrial Production data shows that industrial performance has been robust through the year.

The surprise, in a negative sense, has been the services sector, the engine that powers growth in India, which grew by 8.5% in 2009-10 against an expected 8.7%. In contrast, in 2009-09, the services sector grew by 9.8%. Another negative has been the slowing of consumption that fell from 8.3% in the previous fiscal to 5.3% this year.

There are two other facts that deserve to be noticed. One, while investment has picked up, the consumption boost from higher government expenditure (and “stimuli" of various kinds) is slowly tapering off. Two, while industrial growth continues to be good, 2010-11, being a year of uncertainties, could still throw some nasty surprises. This could affect manufacturing and services and those among the latter, especially the ones dependent on exports. This is not only due to slowing of key markets in Europe and North America, but also due to the great uncertainty in the global economy, something that quickly leads to a tightening of purse strings everywhere.

The improvement in investment should be interpreted with caution. Its effects (on capacity expansion) often come with lags. However, when seen in combination with strong industrial growth, care on the inflation front is called for: It is not surprising that non-food inflation continues to be high and remains a worrying factor. And it is not surprising that the Reserve Bank of India continues to repeat the message of interest rate tightening in the face of good economic performance.

Will India see high growth rates in the years to come? Tell us at views@livemint.com

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Published: 31 May 2010, 08:20 PM IST
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