GDP growth in Q4 down to 7.8%

Decline gives rise to fear of an economic slow down

GDP growth in Q4 down to 7.8%

While in the first three quarters of fiscal 2010-11 the economy witnessed growth momentum posting growth rate of 9.4 per cent the fourth and last quarter (January to March 31, 2011) recorded a lower growth rate of 7.8 per cent, latest GDP data show.
The decline in the pace of GDP growth rate in the fourth quarter is primarily due to poor performance of the key manufacturing sector. In face of rising inflation, there is already growing apprehension that the overall economic growth rate in the current fiscal 2011-12 might moderate to 8 per cent from the high 9 per cent projected earlier.

The apprehension over decline in overall economic growth rate in the current fiscal is primarily due to probable decline in the crucial manufacturing sector, which is likely to be impacted if the Reserve Bank of India continues to adopt tight monetary policy to contain high inflation.

Tight monetary policy always hardens the overall interest regime thereby making borrowing expensive, which in turn affect the investment in key manufacturing sector.
Analysis of data shows during the fourth quarter of 2010-11 growth in the manufacturing sector slowed down to 5.5 per cent from 15.2 percent in the corresponding quarter of 2009-10. Similarly, the other crucial segment like mining and quarrying sector grew by only 1.7 percent during the last quarter of 2010-11 as against 8.9 percent in the fourth quarter of the previous fiscal.

Similarly the trade, hotels, transport and communications segment witnessed lower grate of 9.3 per cent in the last quarter of 2010-11 as against 13.7 per cent expansion in the corresponding period of 2009-10.

However, the key agricultural sector showed spectacular improvement growing at 7.5 per cent during the last quarter compared to a meager 1.1 per cent in the corresponding period of 2009-10.

Reacting to drop in economic expansion during the fourth quarter Finance Minister Pranab Mukherjee cautioned that growth in the current fiscal could suffer if inflation remained high. Planning Commission Deputy Chairman Montek Singh Ahluwalia also cautioned the GDP growth rate during the current fiscal might moderate to 8 to 8.5 per cent.

Expressing concern over deceleration in growth rate in the fourth quarter apex industry bodies also cautioned the “steep” rise in interest rates would continue to have a softening impact on growth in the current fiscal.

GDP growth in 2010-11 rose to 8.5 per cent against 8 per cent in 2009-10. This surge was mainly driven by the impressive recovery in agricultural output. The key agriculture sector expanded by 6.6 per cent during 2010-11 as  against abysmally low level of 0.4 per cent in the previous fiscal. However, growth rate of the other crucial segment-- manufacturing sector—dropped to 8.3 per cent in the 2010-11 from 8.8 per cent in 2009-10.

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