GDP growth is likely to skid in Q2, says FM

GDP growth is likely to skid in Q2, says FM

Growth rate of key sectors like industry & manufacturing seen to move upward

Finance Minister, Pranab Mukherjee lights the lamp during the 104th Foundation Day celebrations of Bank of India in New Delhi on Monday. PTI

“In view of weak Monsoon there is likely to be some pressure on the overall growth rate of the Gross Domestic Product (GDP) of the current fiscal. The second and third quarters may witness a fall in the GDP growth rate compared to 6.1 per cent as noticed in the first quarter (April-June, 2009),” he said at an interactive session with Forum of Financial Writers here.

“However, we expect there will be a pick up in the last quarter. Thus the overall GDP growth rate in the current fiscal will be six per cent plus,” he said adding that growth rate of key sectors like industry and manufacturing would continue to move upward aided by revival in demand cycle.

Only recently the Planning Commission in its latest update on state of economy while envisaging a GDP growth rate of 6.3 per cent in the current fiscal has projected a fall in growth rate in the second and third quarters in view of weak Monsoon.

In fact, the Plan Panel has cautioned that the GDP growth rate might nose dive to 5.5 per cent in the current fiscal in case the growth rate of the crucial agricultural sector declines by 6 per cent due to worst form of drought.  Explaining reasons behind expected downturn in growth rate in the second and third quarters Mukherjee said: “the export continues to witness declining trend. This is a matter of worry. Unless there is revival in the economies of the US, EU and Japan, who are India’s major importing countries, there will be no upsurge in our export’s growth rate.”

“Of late there is some revival in economies of these economies. We hope this will have a positive impact on our export. Hopefully, the results will be seen towards end of this year,” he said.

Divergence in inflation

In regard to inflation the Finance Minister said it would move into positive zone by end of this year.  “Inflation is now posting negative rate because of the effect of higher base. But the government is aware of the fact that prices of essential food items are witnessing a rise,” he said there was wide divergence between the inflation data based on Wholesale Price Index (WPI) and Consumer Price Index (CPI).

While the WPI is giving a weightage of 16 per cent to food items, in the case of CPI it is nearly 60 per cent, he said adding “this is giving rise to differences in these two inflation data.”While asserting that the government was committed to contain price rise through effective price management mechanism, Mukherjee said the country had enough buffer stock to take care of likely food shortage in case drought situation further worsened.

The Planning Commission has projected that the WPI-based inflation would soon move back to positive position and the current fiscal would end with inflation remaining above the comfort zone of 4 to 5 per cent.The situation on inflation front could become worse if agricultural output declines in face of weak Monsoon.

“Management of inflation expectations in the course of the year would pose important challenges. Food prices especially could be under pressure if the demand supply situation is not managed effectively,” the Plan Panel has cautioned.

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