Government pegs economic growth at 7.2% this fiscal

Now, it’s official. The overall economic growth during the current fiscal has been pegged at 7.2% by the Central Statistical Organisation.

Though this marks an improvement over the real GDP spurt of 6.7% in 2008-09, it is lower than the forecast of 7.75% in the mid-year review of the economy and 7.50% envisaged by the Reserve Bank of India in its third quarter review of the credit and monetary policy.

Recovery there certainly is, but it is rather feeble. This may provide ammunition for the government to make haste slowly when it comes to the withdrawal of the fiscal stimulus in the ensuing budget.

Further, the advance estimate for this year by the CSO may be on a slippery wicket in so far as the farm sector is concerned. It anticipates a decline of only 0.2% in the contribution of agriculture to the GDP in 2009-10.

This may be an unduly optimistic assessment as the agency admits that the “ production of foodgrains and oilseeds is expected to decline by 8%  and 5%, respectively”.

It also notes that cotton output may be only fractionally better but a 11.8% fall may be in the offing for sugarcane crop. Clearly, a downward revision of the growth rate in agriculture and hence in overall GDP for this fiscal is in the cards when more reliable data become available.

The 7.2% spurt visualised in real GDP has been powered mainly by manufacturing, mining & quarrying and electricity, gas and water supply — all of which are expected to surge by over 8%.

In the event, the GDP originating in the secondary sector is estimated to go up by 8.2%. GDP from the services sector — normally a buoyant segment of the economy — is slated to rise by 8.7%.

Based on the CSO scenario of real GDP originating from the three broad sectors, the structure of the economy during 2009-10 may be deduced.

The tertiary sector is calling the shots with a share of as much as 57.2%; secondary sector is a distant second with a share of 28.2%, while farm segment will account for a mere 14.6% of the total. In effect, the commodity-producing sectors of the economy will have a share of less than 45% in the GDP.

What’s more, in both agriculture and manufacturing, the trend in GDP originating is subject to volatility from year to year. In the case of farming segment, the growth rate had varied from 5.2% in 2005-06 to (-) 0.2% in 2009-10 (projected ) and in manufacturing, it has oscillated from a high of 14.9% to a low of 3.2%.

In mining, power and construction, a sustained high rate of growth has been absent. Thus, if in overall terms, the economic performance is gratifying, it has been mainly due to services.

Interestingly, the pick-up in the growth rate during this year may be traceable to the fillip in government spending undertaken last year.

According to the CSO data, government final consumption expenditure rose by 26.7% in 2008-09 which was substanfitally higher than the growth in private final consumption expenditure - 14.3%.

In the current fiscal, both have flagged but the rate of government consumption spending, at 14.2%, is more than that of private final consumption expenditure (10.8%).

The impact of this is reflected in the virtual pause in the rate of private final consumption expenditure between 2008-09 and 2009-10, with the rate moving only marginally from 57.7% to 57.8% and in the spurt in the rate of government final consumption expenditure, from 11.7% to 12.1%.

With the focus on spending to combat recession, it is no surprise that the tempo of investment had slackened during the current year. CSO figures indicate that, from 12.8% in gross fixed capital formation in 2008-09, the incremental growth may fall sharply to 8.4%; as a consequence, the rate of gross fixed capital formation may slide from 33% to 32.3%.

The per capita income for 2009-10 is pegged at Rs.43,749 at
current prices, showing an increase of 9% over the previous year.
But, at 2004-05 prices, the per capita income is lower at Rs 33,540 crore, and is up by only 5.4% over the year.

Interestingly, the per capita GDP is higher than the per capita national income, forecast at Rs 49,498 and Rs 38,060 at current and constant prices, respectively for 2009-10.