CMIE pegs Q2 GDP growth at 8.7%

CMIE pegs Q2 GDP growth at 8.7%

Mumbai: Leading macroeconomic research agency Centre for Monitoring Indian Economy (CMIE) has pegged the gross domestic product growth (GDP) in the second quarter at 8.7%, a tad less than the 8.8% it notched up in Q1.

“We estimate that the real GDP grew by an impressive 8.7% during the July-September 2010 quarter, making it the third consecutive quarter with over 8.5% expansion", CMIE said in its monthly report on the macro economy, released here on Monday.

Despite the past 2-month of disappointing growth numbers, the agency retains its GDP growth forecast at 9.2% for this fiscal, as it expects the economy to maintain the expansionary steam in the coming months.

The government has forecast the GDP for the current fiscal to grow at 8.5-8.75%, while the International Monetary Fund has pegged growth in calendar year 2010 at a stupendous 9.7%.

Factory output growth declined the most in 16-month to 4.4% in September, reflecting a general slowdown in demand across sectors on the back of the successive monetary tightening by RBI to rein in high inflation.

This is the second massive dip in the IIP numbers, after a stellar 13.76% growth in July, which more than halved to 5.6% in August.

The IIP numbers have been hammered down by the manufacturing sector, which constitutes almost 80% of industrial production. While in September manufacturing grew by a poor 4.5% against a 8.3% in the same month last year, in August it managed just 5.9% growth from 10.6% in August 2009.

In September, four of the 17 industries recorded contraction in output, including chemicals and metals and other core industries, which together managed a paltry 2.5% growth in September, an 18-month low. However, for the first half, IIP growth was at 10.2% from 6.3% a year ago.

What is significant is that the 8.7% expected growth comes on the back of a high base, says CMIE, and points out that during the second quarter of the last fiscal, the GDP had clipped at 8.6%.

The agency attributes its optimism for the 9.2% economic expansion in the full fiscal on the following three factors--significant macroeconomic stimulus provided during 2008-09 and 2009-10, the recovery of the agricultural sector, and the ongoing recovery in the global economy.

“Agriculture and allied sector is estimated to have grown by 4.3% during the reporting quarter on the back of an above normal monsoon, compared to a negligible 0.9% in the year-ago quarter. Likewise, the industrial sector is estimated to have risen by 9.6% against 7.8% in the year-ago quarter", says the report.

The agency pegs the first half GDP expansion at 8.7% compared to 7.3% in the year-ago period.

“Growth has been more broad-based this year so far, as all segments of the economy have performed better this first half than they did in the previous fiscal", says the report.

While machinery & equipment recorded 24% growth in Q2 compared to 9.8% in H1 FY10, consumer durables by 27% against 18.8% in the same period last fiscal.

Exports grew 21.4% (-17.9%), imports up 23.3% (-20.1%). Similarly, bank credit, foreign capital inflows and indirect tax mop-up also remained robust during the first half of this fiscal.

Mining & quarrying is projected to have grown at 8.2% in the reporting quarter, which is a tad lower than its growth in corresponding quarter last fiscal when it grew by 10.1%, while manufacturing grew by 10% (9.1%), construction by 10.1% (4.7%), services by 9.2% (10.2%) and financial services sector by 9.8% (11.5%), says CMIE.