When the government updates its data and puts out a new number by the end of this year, there is a good chance that India’s gross domestic product would have registered a growth rate much higher than the estimated 9.4% in 2006-07.
Some economists, such as those at domestic rating agency Icra Ltd, peg annual growth rate at 9.8% for the full year.
“Both agricultural and industrial output growth are now known to be higher than they had been in May 2007. Hence, it is more than likely that, subsequently, the Central Statistical Organization (CSO) will revise its estimate for last year upwards to somewhere around 9.8%,” predicts Saumitra Chaudhuri, economic adviser, Icra.
The government’s chief statistician and secretary, department of statistics and programme implementation, Pronab Sen, agrees, saying: “The quick estimate could well turn out 0.2-0.3 points higher.” He says that not only do historic trends indicate an upward revision, but the performance of agriculture, particularly the rabi harvest, was better than expected.
Former RBI governor Bimal Jalan says, “there is no doubt that the economy has attained a level of strength that has not been fully understood yet. There is definitely a structural break.”
India’s annual national accounts estimates go through four stages: advance, revised, quick and final (accounts). For 2005-06, the advance estimate was 8.1%; of revised estimates was 8.4%; and, quick estimates was 9%. This happened mainly due to sharp upward revisions in outputs from agriculture and construction, both largely unorganized sector activities.
For 2006-07, the CSO has come out with advance estimates, released in February, which forecast a growth of 9.2%, while the revised estimate released at the end of May, hiked the expectation to 9.4%, foreseeing higher output from manufacturing as well as construction. Said Rajeev Malik, economist with JPMorgan Chase: “An upward revision to agriculture, which is definite, and some service categories could prompt an upward revision by around 0.2 points to 9.6%.”
According to Chaudhuri, the question to ask is whether growth is sustainable. “The data reinforces the story of a growth acceleration underpinned by very rapid expansion of investment demand, especially from the private corporate sector, and a slower one of consumption.”
Chaudhuri estimates the savings rate to touch 35.6% of GDP this year, up from 34.7% in 2006-07. More importantly, he expects investment rate to accelerate even faster from 35.1% of GDP last year to 36.3% this year. Sen says, “it is heartening that after a long gap of eight years, private corporate sector investment has come back to its old levels,” accounting for an average of 40% share in additional GDP.
For the current year too, both industrial growth as well as the GDP estimates for the first quarter have come in unexpectedly strong. For instance, GDP growth for April-June came to 9.3%, compared to less than 9% expected by most analysts.
Even industrial growth is still to dip, as forecast for the past few months, below 10%. Indicus Analytics chief economist Sumita Kale says: “we have to confess that we expected a faster rate of decline, and the resilience of the economy has been more than normal.”