Ashok Handoo writes: After 8.6 percent quarterly growth rate, it is now 8.8 percent. India’s economy has grown by 8.8 per cent in the first quarter of the current financial year ending June against 8.6 percent in the last quarter ending March. This is the strongest performance since 2007. The economy grew by just 6 percent in the first quarter of the last financial year.
This impressive performance has been achieved due to high growth in the manufacturing and services sector. Data released by the Central Statistical Organization on Tuesday revealed an increase of 12.4 per cent growth in manufacturing sector. This was only 3.8 in the first quarter last year. The growth has been 7.5 per cent in construction and 8.9 per cent in mining. Farm output, forestry and fishing grew by a modest 2.8 percent in this quarter, but still higher than 1.9 percent in the first quarter of the last fiscal.
A good monsoon this year is expected to increase agriculture production in the coming months and give a further boost to the growth process.
Judging by this performance analysts believe that India could well end up with a growth rate anywhere between 8.5 to 9 percent in the current financial year- a figure India had been achieving, year after year, until the global economic crisis hit the economies across the world. So far the government has predicted the economy to expand 8.5 percent in the current fiscal, compared to an annual growth of 7.4 percent in 2009-10.
As the Finance Minister Mr. Pranab Mukherjee put it “The numbers are quite encouraging…..I do hope it will be possible to maintain this level of growth.”
The performance in the first quarter will encourage the Reserve Bank of India to pursue its tight money policy to curb inflation which has been a major concern for the government. Though the RBI raised the key interest rates four times in the current financial year so far, it has been treading the path carefully lest heavy doses hamper the growth process. Some economists believe that RBI may now give a pause to further increasing the key rates. One, however, has to wait till September 16, when the RBI will come out with its review of the economy report, to find what approach the bank adopts on the key rates issue.
The headline inflation has eased from double-digit levels to 9.97 percent, lowest since February, and is likely to soften further in the wake of good harvests. High inflation has hurt the poor most, because they spend a greater part of their income on food. Though food inflation too is coming down but it still remains high at 16.6 percent. The silver lining is that as new crops arrive in the market, it is expected to come down. This should give a relief to the people, particularly those in the poor category. The Government is confident to bring down the inflation rate to around 6 percent by the end of this calendar year. Though agriculture constitutes only about 18 percent of India’s GDP, it caters to half of its 1.2 billion population. As such its importance can hardly be overemphasized.
Keeping in view the Indian situation, the importance of Micro, Small and Medium Enterprises in the growth process is all too important. As President Pratiba Devi Singh Patil pointed out while presenting National awards to excellent performers in this sector, it accounts for about 45 percent of manufacturing output, 95 percent of the number of industrial units and 40 percent of exports. Besides, the sector provides employment to almost 60 million people, mostly in the rural areas of the country, making it the largest source of employment after the agriculture sector. The sector also represents the philosophy of Swedeshi movement in the country since village and Khadi industries form a bulk of this sector. Development of this sector thus holds key to inclusive growth and plays a critical role in India’s future. The sector therefore is an engine of growth.
Quite understandably, the President called for adequate attention to this sector by introducing better technology, improving credit facilities and upgrading the marketing structure so vital to give a push to this sector. The sector faces challenges at all levels. It cannot afford expensive technologies due to smaller turnover at individual level. The banks consider it a vulnerable sector and thus shy away from lending adequate finances to it. But sufficient and timely financial support is absolutely essential for its survival, failing which smaller units face the threat of extinction. On the marketing front too, more needs to be done to give it a better exposure by holding domestic and international trade fairs.
One area of concern is the low growth in domestic demand in the quarter under reference. The figures indicate that consumption at the grass root level has not picked up yet, though car sales climbed 38 percent in July. But that jump reflects expenditure pattern of middle and high income groups.
As during the last two difficult years, the economy will have to depend on domestic demand for growth. Exports in this quarter also rose only by 13 percent, slowest in six months, indicating slow economic recovery in the traditional European markets. So was the case with merchandise exports which increased 13.2 percent in July. Though exports too form only 20 percent of India’s GDP, Unlike China where the figure is about 38 percent, but about 40 per cent of industrial production is influenced by external factors, like commodity prices. That underlines the importance of raising exports in the days ahead.
The Planning Commission Deputy Chairman Montek singh Ahluwalia says the growth is on the expected lines. The overall GDP growth in this fiscal would be slightly better than 8.5 percent.” The industry bodies are confident that the momentum would be enough to touch the 9 percent figure for 2010-11. Whether that happens or not remains to be seen.
The Prime Minister Dr. Manmohan Singh has always been stressing that the country needs double-digit growth to lift hundreds of millions of Indians out of poverty. India, world’s second-fastest growing major economy, needs to do more to post even better figures in the remaining three quarters of the current financial year. That requires a consistent effort and a closely monitored economic and monetary policy.