India's Economic Growth

Unmindful of the global recession and economic slowdown the world over and proving a number of international agencies wrong, and braving the global recessionary trends, India managed 6.7 per cent economic growth in 2008-09 despite the manufacturing sector recording a dismal performance. This has further strengthened the widely held view that the economy has turned the corner and shares have risen to eight months’ high. A 5.8 per cent growth rate during the last quarter of the fiscal, at a time when most developed economies have shrunk, puts India among the top-most growing countries, according to the official data released recently.

The growth rate during 2008-09 is lower than the 9 per cent in the preceding fiscal, but that is not as low as expected by certain analysts and quite in the range projected by the Reserve Bank of India (RBI): 6.5-7 per cent.

The Main Reasons
The slowdown is attributed to poor performance by manufacturing sector despite robust growth in some service sectors. The manufacturing output has expanded by a mere 1.4 per cent adding a cause of worry to the already sagging economy quarter, pulling down the fourth quarter Gross Domestic Product (GDP) growth to 5.8 per cent from 8.6 per cent a year ago. GDP growth in the third quarter of 2008-09 has been revised to 5.8 per cent from 5.3 per cent estimated provisionally.

As per the data, the higher-than-expected growth came about despite the farm sector logging a mere 2.4 per cent growth.

A major reason for India escaping the heat of the meltdown is its limited dependence on exports. Unlike China, Japan and Singapore, India’s growth is driven by huge domestic demand, which remained buoyant. Rural demand got a boost from schemes like Bharat Nirman and the rural job guarantee scheme that provided employment and cash to villagers.

The other reason why the overall growth got a boost was the 13 per cent jump in the expansion of community services, nine per cent in transport and communications sectors, and 7.8 per cent in financial and other services sector.

Expansion in construction activities was also higher than the overall growth at 7 per cent. This apart, mining output was up 3.6 per cent and electricity and fuel production grew by 3 per cent, the fresh data showed.

Surging Sensex
The Bombay Stock Exchange (BSE) Sensex market whole heartedly welcomed the news with the Sensex rising by 400 points to touch 14692.27 by mid-day, a level witnessed in September 2008.

Keeping the surging sensex in mind, the growth numbers have heightened hopes of a relatively quick economy recovery. If such optimism needs tempering, it is because reassuring data on farm output, now back in the green, construction and services is somewhat offset by a contraction in manufacturing. A fair part of the manufacturing sector's poor showing is, however, driven by externalities. India's exports have decreased due to slumped global demand.

Dip in Industrial and Agricultural Output
Besides, the major reason for the slippage, therefore, was due to the sharp slide in both industrial and agricultural growth, which fell from 8.2 per cent and 4.9 per cent, respectively, in 2007-08.

Agriculture production registered 1.6 per cent growth in 2008-09 against 4.9 per cent in 2007-08, even as it bettered performance in the fourth quarter of the last fiscal to 2.7 per cent against 2.2 per cent in the same period in the previous fiscal.

A steep hike in the salaries of Central and State Governments employees kept up consumer demand in the urban and semi-urban areas. Besides, the Government’s stimulus packages, tax cuts and falling global commodity prices, especially of oil, rescued the economy from any significant slide.

Signs of Revival
The sales of vehicles and the production of cement, electricity and refined petroleum are showing signs of revival. India’s passenger-car sales increased 4.2 per cent in April from a year earlier, after a 1 per cent gain in March. Cement production jumped 10.1 per cent in March 2009 and electricity output rose 5.9 per cent in the same period in 2008. This shows resilience of the economy against the background of global recession during the later part of 2008, said industry chamber Federation of Indian Chambers of Commerce and Industry.

The reports from the US have further raised hope. Japan is the latest to be found bouncing back. However, India’s exports are still in the dumps and may stay there in the next few months. Information Technology, textile and pharmaceutical companies are bearing the brunt of the US recession.

It is premature to conclude from the recent growth data that the worst of the crisis is over. Getting back to the earlier levels would depend largely on whether the recent gains of the advanced economies aggregate and form a positive trend. It can be said that the Government-announced stimulus is what has kept the Indian economy stabilizing along.