NEW DELHI: India's economy grew an annual 7.9 percent in the September quarter, much faster than expected on government stimulus spending and a
The annual growth for India's fiscal second quarter was far above a median forecast of 6.3 percent in a Reuters poll as agricultural output performed better than expected, sending the yield on the benchmark 10-year bond up by 2 basis points as investors bet on higher interest rates. The growth was the strongest for Asia's third-largest economy in 18 months. ( Watch )
"This data could be a green light for the Reserve Bank of India to hike rates, and there are greater chances of this by end of the calendar year. The exit from the fiscal stimulus by the government may also be earlier post the GDP data," said Robert Prior-Wandesforde, senior Asia economist at HSBC in Singapore.
In the June quarter, India's economy grew 6.1 percent from a year earlier, and Prior-Wandesforde said that by his calculation the September's period's growth was the sharpest on a quarter-by-quarter basis since quarterly data began in 1996.
Manufacturing output expanded 9.2 percent in the September quarter as consumers stepped up purchases of cars and other goods. Farm output was up 0.9 percent, beating expectations for a decline, although economists warned that the impact of the poor monsoon was likely to be seen in the current quarter.
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"The December quarter will show agriculture declining, because that's when the harvest shortfall will get captured," said Rajeev Malik, economist at Macquarie in Singapore, who stuck with his view that the central bank would deploy liquidity management steps rather than rate hikes in December and January.
"I don't think they (RBI) are going to be swung by what agriculture has done on a technical basis," he said. Last week, India's finance minister expressed worry about rising food prices -- the result of a bad summer monsoon and floods that have crimped farm output.
On Monday, however, a top government advisor said there were no serious inflation concerns for now and said he expected no change in government stimulus policy for the current fiscal year. "It is difficult to project what will happen in the rest of the year. But this performance does suggest that there may well have to be an upward revision in the GDP growth of 6.5 percent which has been projected so far," Montek Singh Ahluwalia, deputy chairman of India's Planning Commission.
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*******************************************India's Q2 GDP at 7.9%
Belying predictions, the Indian economy grew by a significant 7.9 per cent in the second quarter of this fiscal, up from 6.1 per cent in the previous quarter, essentially due to a good showing by the industry and the services sector.
The growth compares favourably to 7.7 per cent recorded in the July-September quarter in the previous year.
Consequently, the economy rose by 7 per cent in the first half ending September 30 of the current fiscal on the back of stimulus packages and revival of domestic demand, giving hopes that final figures for the year could be much higher.
The government, including Finance Minister Pranab Mukherjee, the Reserve Bank and the Planning Commission had predicted a growth of about 6-7 per cent, while global agencies and analysts forecast it to be even lower.
The Prime Minister's economic advisory panel had pegged the economy to grow by around 6.1% in Q2 due to the impact of a weak monsoon on agriculture.
Financing, agriculture and real estate growth stood at 7.7% in Q2. The surge in GDP numbers was helped by the manufacturing sector, which grew 9.2% in the second quarter vi-a-vis 5.1% a year earlier.
Analysts were expecting a growth rate of 6.1-6.6 per cent in the second quarter. The economic growth of close to eight per cent in the second quarter is also remarkable in the context of just 0.9 per cent expansion in farm production due to a weak monsoon and continued contraction in exports due to slackening demand overseas.
However, the manufacturing sector grew by 9.2 per cent in the July-September period compared to 5.1 per cent in the corresponding period of last fiscal and mining and quarrying by 9.5 per cent versus 3.7 per cent recorded in FY09.
Community, social and personal services expanded by double digit at 12.7 per cent against nine per cent. Despite being affected by international slowdown, trade, hotels, transport and communication sector grew by 8.5 per cent, which is lower than 12.1 per cent a year ago.
Financing, insurance, real estate, and business services rose by 7.7 per cent against 6.4 per cent. Electricity, gas and water supply was up 7.4 per cent compared to 3.8 per cent. Construction rose by 6.5 per cent, down over 9.6 per cent a year ago.
It was after September, that growth declined to 5.8 per cent in the subsequent two quarters last year. So, if the trend continues, the growth rate is expected to be much higher in the second half of this fiscal.
The size of the domestic economy stood at Rs 17.90 lakh crore in the first half of FY10.
The Reserve Bank deputy governor Subir Gokarn said, "clearly this is better news than we could have expected and we will have to review the forecast for the year as a whole."
The Prime Ministers' Economic Council chairman C Rangarajan also said that the target of 6.5 per cent GDP growth for the current fiscal may have to be revised upwards following the robust second quarter numbers."
With this, the domestic economy continues to be the second fastest growing large economy in the world after China, which recorded 8.9 per cent in the July-September of 2009.
As hopes of revival accentuates after the data, economists expect that the government may now think of withdrawing the fiscal stimulus. "The government could withdraw stimulus (excise duty cuts) for fast-growing sectors as the Centre's revenue position does not look too good," Crisil principal economist DK Joshi said.
Manufacturing, which drew benefits of the stimulus package, expanded by a smart 9.2 per cent against 3.4 per cent in the preceding quarter and 5.1 per cent in the second quarter of the last fiscal.
However, Ahluwalia said,"my views have always been that we should look at the position (stimulus) at close to February."
From last December through March 2009, the Centre had cut excise duty by six per cent and service tax by two per cent, besides stepping up plan expenditure to generate demand, which slowed down after the US financial icon Lehman Brothers collapsed last year, dragging the whole world into the worst recession after the Great Depression of the 1930s. Positive growth by the farm sector also surprised economists. "We are surprised with agriculture growth. If not a downslide, we expected a decline at least," HDFC chief economist Abheek Barua said.
However, some economists still maintain their under-seven per cent forecast for FY10. "We yet maintain our 6.5 per cent GDP forecast," Yes Bank chief economist Shubhada Rao said.
With growth on the upswing, the moot question now is will the government and RBI now shift their focus on controlling inflation. Food inflation has already crossed 15 per cent during the second week of November.
While Ahluwalia said traditional monetary tools of the RBI may not be effective in curbing food inflation, Rangarajan believes that RBI may now focus more on reining inflation.
Both Joshi said, "there is a strong possibility of interest rate hike by the RBI in January." Barua also said a case for a rate hike remains. "With respect to monetary policy action, clearly this strong GDP number gives a green signal for some tightening and we maintain our earlier call of a CRR hike by 50 bps by December-January."
Construction, which has a cascading effect on economy, grew less this quarter at 6.5 per cent against 7.1 per cent Q1 and 9.6 per cent in Q2 last fiscal. But financial, business services and realty rose by 7.7 per cent against 8.1 per cent in Q1 and 6.4 per cent in Q2 FY09.
Trade hotels, transport and communication, grew higher at 8.5 per cent than 8.1 per cent in Q1, but lower than 12.1 per cent in Q2 FY09. However, electricity, gas and water supply at 7.4 per cent and mining and quarrying at 9.5per cent grew more than first Q1 of FY10 and Q2 of FY09.
Src: Monecontrol, Economictimes, Business-Standard Websources..