GDP growth at 6-year low

28 Feb 2009

NEW DELHI: The Indian economy is now officially estimated to have grown at 5.3% in the October-December 2008 quarter over the corresponding months of 2007, making it the lowest year-on-year growth for any quarter since January-March 2003.

The lower than expected growth in the third quarter (Q3) of 2008-09 makes it extremely unlikely that the 7.1% growth projected for the full financial year earlier this month will be met. It also is likely to add to pressure on the Reserve Bank of India to take some monetary measures to boost growth for the rest of the year.

The sharp dip in growth in Q3 - from 7.6% for Q2 - was largely due to a 2.2% decline in GDP from agriculture and a 0.2% decline in the manufacturing sector. The dip in agriculture would be particularly worrying for several sectors which were expecting strong rural demand to help in tiding over the impact of a global recession.

For April-December 2008, the first nine months of the current fiscal, the growth rate is now put at 6.9%. That means the economy will have to record a growth of 7.7% in Q4 if the projected 7.1% growth for the full year is to materialise. Given the context of a global recession, that seems an extremely remote possibility.

In fact, most analysts believe that if the growth rate in Q4 were to be even 5%, we should be relieved. One reason for this apparent pessimism despite a series of stimulus packages by the government is that the services sector has continued to grow quite handsomely even in Q3, registering a 9.3% increase over the corresponding period of 2007-08. That trend could be difficult to sustain if industry and agriculture continue to be sluggish. In Q3, for instance, "financial, insurance, real estate and business services" grew by an impressive 9.5% and "community, social & personal services" by a whopping 17.3%.

A rapidly sliding rupee would normally have given reason for hope that exports could pick up as they become globally more competitive, but given the all-pervasive gloom in developed country markets, there may not be much to look forward to on this front.

If such a prognosis turns out to be correct, the full-year growth figure could end up being closer to 6.4% than 7.1%. Either way, 2008-09, it is now clear, will register the lowest growth rate of GDP for any year since 2002-03.