It's broad-based, and that's impressive

DNA Analysis

Momentum in investment activity has accelerated in the ongoing fiscal

The economy appears to have got off to a roaring start during the current fiscal, with the real gross domestic product (GDP) recording a growth of 9.3% in the first quarter of 2007-08.

Though somewhat lower the pace may be, when compared to the growth during the same period of 2006-07 - 9.6% - it's still impressive and, more important, broad-based.

The strong economic performance has been fired mainly by the scorching pace of increase in the secondary and tertiary sectors - 10.6% in both - during the April-June 2007 period.

Even in the primary sector, the surge in constant GDP, at 3.8%, has closely approximated to the targeted 4%.

With the overall consumption rate slowing down, there has been a jump in the gross capital formation - to 34.2% in the latest quarter from 32.3% a year ago.

Clearly, the momentum in investment activity has accelerated in the ongoing fiscal. This is reflected in the improvement in gross fixed formation to 31.3% from 29.3% during the same period last fiscal.

With the data for GDP at market prices available at current and 1999-00 prices, we can now make a definitive assessment of the price situation during the initial three months of 2007-08.

Based on the GDP deflator - the most comprehensive measure of inflation rate in the economy - the price rise worked out to 6.3%. This is higher than the inflation rate of 5.4%, arrived at from the official wholesale price index (WPI).

However, the consumer price index (CPI) for industrial workers had hardened by 6.6% during this period and this rate closely conforms to the one derived from the GDP deflator.

The incidence of inflation among the most vulnerable groups, using the CPI for rural and agricultural labourers, at over 8%, is higher than what is indicated by the GDP deflator.

But, on balance, judging from this measure, inflation is still worrisomely high; that is to say, high growth is also accompanied by a high rate of price rise.

The Reserve Bank of India (RBI) had targeted a growth of 8.5% in real GDP during the current year. It would seem that, judging from the first quarter, this goal may be within reach.

On the other hand, the RBI had entertained hopes to contain the inflation rate to below 5%, but this seems to be a remote prospect, with the GDP deflator ruling well above the 6% mark and even the average price spurt in the first quarter, based on the wholesale index, ruling above the 5% mark.

The main impetus to the 9.3% leap in real GDP during April-June 2007 had emanated from the secondary and service sectors.

Within the secondary sector, the major engines of growth were manufacturing - 11.9% as compared to 12.3 - during the same quarter of the previous year - and power generation - 8.3% against 5.8%.

Construction, too, performed a shade better in that the GDP originating from this segment rose by 10.7%. A year ago, this sector had increased by 10.5%. The mining and quarrying sector was a laggard with the growth decelerating to 3.2% in the latest period from 3.7% in the preceding fiscal.

The buoyancy in the tertiary sector in recent years continued in the current fiscal. Within this area of the economy, the main engines of growth were trade and related activities - 12%- and financial services 1%.

In both, the tempo witnessed in the first three months was more or less the same as was observed a year ago. But assorted services like community services exhibited a marked slowdown - to 7.6% from 11.3%- during the first quarter of 2007-08.