New Delhi: The surprisingly robust expansion in Indian economic output during the last quarter of 2008-09 has emboldened many private sector economists to raise their growth forecasts for the current fiscal year.
Growth curve: The core sector growth doubled in April to 4.3%, raising hopes that industrial production may turn positive for the same month. The latest industrial production data available is only for March. Ahmed Raza Khan / Mint
The government said last week that India’s gross domestic product (GDP) in the three months to March was 5.8% higher than the corresponding period of 2008, far more than what most economists expected and perhaps a sign that the economy has turned around despite continuing troubles in other parts of the world. Economic growth for the entire 2008-09 fiscal year was 6.7%.
Many economists are pinning their hopes on strong investment activity and a reforms push from the government to power economic growth in the current fiscal year.
Citigroup Inc. economist Rohini Malkani has raised her growth forecast from 5.5% to 6.8%. She said in a research note that the upward revision was due to higher investment growth.
As a percentage of GDP, investment grew to 32.2% compared with 31.6% the previous year, even though year-on-year growth declined to 8.2% from 12.9% a year ago.
National Council of Applied Economic Research (NCAER) senior fellow Shashanka Bhide says the widespread optimism is also based on the expectation that there will not be any fresh external shock to the Indian economy. “External shock was most severe in 2008-09. With low oil prices and fiscal stimulus by the government, growth is expected to make strong recovery in the second half of the current fiscal,” Bhide said. NCAER currently expects GDP growth to be 6.5-6.7% during the current fiscal. However, Bhide said the think tank may raise its estimate after the government presents the budget in the first or second week of July.
Abheek Barua, chief economist of HDFC Bank, said a stable government and strong flow of capital is expected to sustain a high level of investment. After a brutal sell-off in 2008, foreign institutional investors have returned to the Indian equity market, bringing in $4.56 billion (Rs213.41 crore) since the beginning of the year, net of sales.
“It is expected that the major infrastructure projects will get a push and private sector investment will make a comeback,” Barua added. Barua also expects economic growth will be robust during the second half of 2009-10.
India’s exports and factory output are still in the shrinking. However, the core sector growth doubled in April to 4.3%, raising hopes that industrial production may turn positive for the same month. The latest industrial production data that is available is for March.
However, there are many sceptical voices as well.
Bimal Jalan, former Reserve Bank of India governor and current Rajya Sabha member, agreed that the Indian economy may have bottomed, adding that he does not give much emphasis to the fourth quarter (Q4) GDP growth number. “So far government expenditure is driving growth. We need to see whether private investment recovers. We also need to wait for at least three months to see whether there is a turnaround in the manufacturing sector.” Jalan said there is hardly any room for comfort. “We cannot maintain such high fiscal deficit,” he added. The fiscal deficit is expected to touch 11% of GDP in the current fiscal.
Chief statistician of India Pronab Sen is also sceptical about using Q4 GDP data of 2008-09 to draw clear conclusions for the current year. “We are seeing clear discontinuities,” Sen recently told Mint, referring to the volatile times through which the global economy is going through.