The Indian economy grew a better-than-expected 7.6% during the second quarter of the fiscal, but analysts and economists were far from
happy. They expect the growth rate to slow over the next two quarters, and stressed on the need for further rate cuts to prevent a sharp slowdown.
Data released by the Central Statistical Organisation on Friday showed that all the eight economic sectors that contribute to the gross domes-tic product (GDP) recorded a lower growth year-on-year. The slow-down in the services sector — which accounts for nearly 60% of the output — was milder than expected, though.
Select industries such as trade, hotels, transport and communication saw better-than-expected growth, expanding 10.8% during the three months to September 30, almost on a par with year-ago levels. In-vestment during the period also remained robust, shoring up the GDP figure.
The economy expanded by 7.9% during the first quarter, taking the first-half GDP growth to 7.8 %. Economists had been expecting second quarter GDP to grow 6.9%, according to an ET poll of 12 analysts.
“The growth rate for the first half is healthy as the global economy is going through a slowdown. Growth in agriculture and allied services will pick up in the coming quarters,” finance minister P Chidambaram told reporters.
The PM’s economic advisory council expects GDP growth to be 7.7% this year, although other agencies are expecting it be be-low 7%, well short of the 9%-plus average growth of the past three years. Suresh Tendulkar, chairman of the PM’s economic advisory council, told ET that “agriculture and the manufacturing sector are expected to fare better in the coming quarters”.
He, however, said that the terror attacks in Mumbai, in which top five-star hotels were targeted and many foreign nationals were killed, would sour the overall investment sentiment.
Growth in manufacturing during the second quarter almost halved year-on-year to 5%, and was down 60 basis points compared with the preceding quarter. Growth in agriculture slipped to a two-year low of 2.7%, raising concerns about its potential impact on food inflation, which continues to rise despite falling headline inflation.
However, economists expect agriculture growth to rebound to 4% levels on the back of a spurt in output in the third quarter, benefiting from the good monsoon and expected interest rate cuts.
With the headline inflation no longer a major concern, some econo-mists said they expected the Reserve Bank of India (RBI) to cut its short-term repo rates by 50 to 100 basis points and signal a lower in-terest rate regime to boost the economy.
The inflation rate based on the wholesale price index fell to 8.84% during the week to November 15, and is well below the peak of nearly 13% witnessed in early August.
Finance minister P Chidambaram on Monday said GDP growth would be slower at 7-8% this year due to the ripple effects of the global fi-nancial crisis, but bounce back in the second quarter of the next fi-nancial year. The RBI is expecting a growth of 7.5% to 8% this year, while the Planning Commission expects GDP to grow at 7%.