GDP growth in Q1 may top 8%: economists

GDP growth in Q1 may top 8%: economists
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First Published: Thu, Aug 28 2008. 12 03 AM IST

Updated: Thu, Aug 28 2008. 12 03 AM IST
New Delhi: India’s economic growth likely moderated to around 8% in the fiscal first quarter, from 9.2% a year earlier, as manufacturing slowed amid rising credit costs and raw material prices, some economists say. Gross domestic product, or GDP, a measure of the goods and services produced in an economy, had expanded 8.8% in January-March.
The Central Statistical Organisation, or CSO, under the ministry of statistics and programme implementation, will release official GDP data for April-June on 29 August, which is likely to confirm that Asia’s third largest economy is slowing down.
“We expect the GDP to grow 8.1% in the April-June quarter,” said Sonal Varma, India economist at Lehman Brothers Inc. “The slowdown is clearly visible in the industry sector as evident from the first quarter Index of Industrial Production data. However, this is the initial stage of any slowdown in the services sector.”
Industrial growth, as measured by the Index of Industrial Production, or IIP, was 5.2% in the three months ended June, almost half the 10.3% recorded in the same period a year ago.
The Reserve Bank of India, or RBI, has raised its key repo rate, at which it lends overnight to commercial banks, by 125 basis points in three moves to 9%, raising borrowing costs in an attempt to cool inflation that has risen to a 16-year high. The central bank raised rates by 75 basis points in June, the last month of the fiscal first quarter. One basis point is one-hundredth of a percentage point.
Credit rating agency Crisil Ltd expects the GDP growth to have slowed to 7.9% in the first quarter on the back of manufacturing, said principal economist Dharmakirti Joshi.
“The tight monetary policy to curb inflationary pressures has led to subdued demand conditions, especially in interest sensitive sectors such as real estate, auto and other consumer durables,” said Kaushal Sampat, chief operating officer of business research firm Dun and Bradstreet India, who pegs April-June GDP growth at 8%.
Lehman’s Varma says the farm sector likely grew 2.5%, and the industry, along with the construction sector, 6.6% during the quarter. She says the services sector may have posted a growth of 10.7% in the same period, and foresees the economic slowdown deepening in the quarters ahead.
“This will be the best quarter for the current fiscal,” Varma said. “As the repo rate hikes took place in the month of June and July, the slowdown in growth will be more visible in the later part of the year.”
Some economists disagree with that assessment.
“I expect growth to moderate substantially to 6-7% in the first and second quarters of the year,” said Shashank Bhide, senior fellow at the National Council for Applied Economic Research. “However, GDP growth will pick up in the second half of the year due to a pick-up in consumer demand.”
The New Delhi-based think tank recently forecast that the economy would grow at 7.8% during the current fiscal. The Prime Minister’s economic advisory council, or EAC, in its economic outlook, released recently, said the economy will grow 7.7% in the year, down from 9.1% in the previous fiscal.
EAC expects the farm sector to expand 2%, industrial GDP to grow 7.5% and the services sector to expand 9.6% during this fiscal.
On Tuesday, finance minister P. Chidambaram said he expected the GDP growth of 8%-plus in the current year. “The government is pumping money into the economy through its spending on various schemes to create demand,” he told an interactive session organized by industry lobby Confederation of Indian Industry.
Despite the slowdown, India will maintain its position as the second fastest growing economy, behind only China, analysts say.
“The average growth in Asia is expected to be 6.5% during the current year. China will again be the fastest growing country with a close to 9% growth this year. So, with a close to 8% growth, India will remain the second fastest growing economy,” said Crisil’s Joshi.
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First Published: Thu, Aug 28 2008. 12 03 AM IST