The economy had fared reasonably well during the first quarter of the current fiscal year, with a better-than-expected growth of 6.1%. Though this represents a setback when compared with the spurt of 7.8% in gross domestic product at constant prices for the same period of 2008-09, sequentially, it marks an improvement over the rate of 5.8% in each of the preceding quarters.
The moot question is whether this feat achieved on the macro economic front can be sustained in the remaining three quarters. The poor monsoon is bound to have a serious impact on agriculture and the resulting drop in purchasing power among large segments of the population may act as a drag on the other sectors of the economy.
In its first quarter review, the Reserve Bank of India was optimistic of a 6% growth with an ‘upward bias’. Some doubts on this score may be in order. Moreover, the crucial manufacturing sector continues to underperform; it had registered a surge of only 3.4% during April-June 2009 which compares poorly even in relation to the modest 5.5% achieved in the same quarter of the preceding fiscal.
Analysing the data issued by the Central Statistical Organisation, it is seen that the tempo had flagged markedly in the services sector —- normally a pace-setter of overall economic growth —- during the April-June period of this year; the real output emanating from this sector had risen by 7.8% as against 10.2% a year ago; in industry, pace had slowed down to 5% from 6% and in the primary sector to 2.4% from 3%.
An inference can be drawn that the stimulus package unveiled by Centre and states, together with the fiscal stimulus of the Reserve Bank of India might be a factor behind the encouraging economic performance during the first quarter. Government final consumption expenditure increased by as much as 17.2% in contrast to a more modest 7.9% last year, so that the rate of government final consumption expenditure jumped to 10.6 per cent from 9.7%.
On the other hand, with an incremental growth of a mere 6.4% in private final consumption expenditure —- this was 12.6% during April-June, 2008-09 —- the rate of private final consumption had dipped to 54.1% from 54.6%.
In regard to investment, the flow of good news continued in the latest quarter as well. The rate of gross fixed capital formation, already high last year, was quite impressive at 33.5% during the three-month period ending June 2009.
Despite problems, the tempo of investment activity is brisk which augurs well on the macro economic front. At a more disaggregated level, the CSO data for the first quarter reveals that the real GDP originating from mining & quarrying has risen sharply to 7.9% from 4.6%, from electricity, gas & water supply to 6.2% from 2.7% and financing, insurance, real estate & business services to 8.1% from 6.9%.
But, there was a sizable slackening in the rate of growth in trade, hotels, transport & communications to 8.1% from 13%; other laggards included agriculture, construction and community, social and personal services.
Taking a longer time span —- that is, since the compilation of the national income series with 1999-00 as the base —- the quarter 1 growth rate of 6.1% in real GDP during this year is the lowest since 2003-04 (5.4%); for four successive years thereafter, the spurt was above 8% before it dropped to 7.8% in 2008-09.
In regard to the rate of gross fixed capital formation, the trend has been upward from 2003-04 and, despite the fall of a full percentage point in the latest quarter, it is still very satisfactory.
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