GDP growth augurs well

The GDP growth data for the July-September period of the current year, released this week, augurs well for the Indian economy which has not had the best of times in some past quarters.

The year-on-year growth rate of 7.4 per cent was faster than the 7 per cent of the previous quarter. It was less than the 8.4 per cent growth rate registered during the same period last year, but the 8 plus growth rate was a one-off figure.

It has also been noted that the latest growth rate is more than that achieved by China in the same quarter. Though that might boost the morale of many, comparisons do not help much in the assessment of the relative performance of both economies which are in different leagues altogether.

What is important is that the economy made a good show even when agriculture was hit by the vagaries of the monsoon for two consecutive years and the macroeconomic conditions were not the best.

The most positive messages coming from the higher growth figures are of a fairly strong revival of manufacturing growth and an uptrend in investment. Manufacturing grew at a high 9 per cent, with trade, transport and communication services and the financial sector also showing good improvement.

The output of eight core sector industries grew over 3 per cent annually during the period. While investment rate has picked up, it is still not high enough to support and sustain growth over a long term.

There may be concern over a decline in consumption growth during the period. There is also a mismatch between manufacturing growth and corporate results. But the overall picture is one of possible improvement in the state of the economy in the coming months too.

However, achievement of the government’s target of 8-8.5 per cent growth during the current year looks impossible. In order to achieve that, the economy has to expand close to 9 per cent in the next two quarters.

The Reserve Bank of India’s (RBI) growth projection at 7.4 per cent seems to be more realistic. The RBI also was not influenced by the last quarter GDP performance to make any changes in the policy rates.

It refrained from cutting the rates on Tuesday as it does not consider inflation to be in safe territory now. The central bank wants vigil against inflation to continue. It has acknowledged early stages of recovery in some areas of the economy, but has seen continuing weaknesses also.

The weaker areas will need to be given more attention. The most important among them is infrastructure development.

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