India's Weakest Growth in Six Quarters

GROSS domestic product (GDP) growth in India continued to slide falling to 7.7 per cent in the first quarter of the current financial year (April-June 2011-12), against a 7.8 per cent growth in the preceding quarter and an 8.8 per cent growth recorded in the first quarter of the previous year (according to the revised estimates based on the new series of IIP). The country’s GDP at factor cost at constant (2004-2005) prices stood at Rs12,26,339 crore, as against Rs11,38,286 crore in the first quarter of the previous fiscal (2010-11), according to figures released by the Central Statistical Organisation (CSO). Sectors driving the first quarter growth include electricity, gas and water supply (7.9 per cent), trade, hotels, transport and communication (12.8 per cent), financing, insurance, real estate and business services (9.1 per cent). As per the latest estimates of the index of industrial production (IIP), growth in the index of mining, manufacturing and electricity slowed to 1.0 per cent 7.5 per cent and 8.2 per cent, respectively, in April-June 2011-12 against growth rates of 8.0 per cent, 10.3 per cent and 5.4 per cent, respectively, during the first quarter of the previous fiscal. GDP at factor cost at current prices is estimated to have grown 16.7 per cent year-on-year to Rs19,37,123 crore during the first quarter of 2011-12 quarter, against Rs16,59,708 crore in the corresponding period of 2010-11. The sector-wise breakdown showed that the construction sector had been one of the worst-performing parts of the economy.

Construction grew at 1.2%, down from 8.2% in the previous quarter, as rising interest rates and delays in planning approvals held up building projects. Agricultural output rose 3.9%, which was down from the previous quarter but above the level of 2.4% in the same period last year. Manufacturing grew 7.2%, an improvement from the previous quarter, but well below the 10.6% in the corresponding quarter of 2010-11.Private final consumption expenditure (PFCE) at constant (2004-05) prices is estimated at Rs7,95,683 crore in Q1 of 2011-12 against Rs7,48,395 crore in Q1 of 2010-11, while Government final consumption expenditure (GFCE) at constant (2004-2005) prices is estimated at Rs1,36,935 crore in Q1 of 2011-12 against Rs1,34,161 crore in Q1 of 2010-11. Gross fixed capital formation (GFCF) at constant (2004-2005) prices is estimated at Rs. 4,10,533 crore in Q1 of 2011-12 against Rs3,80,544 crore in Q1 of 2010-11.

The first GDP numbers for the current fiscal confirm several analysts’ assessment of economic prospects for the financial year which would involve further moderation in growth due to stricter monetary policy to curb inflationary pressures. While the 7.7 per cent growth silhouetted against a murky global scenario seems impressive, given the estimated requirements that we spoke about in our previous post, a 7.7 per cent and slower future growth could well jeopardize a lot of calculations on achieving deficit targets as well as infrastructure development and inclusive growth.

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