Strong indications of a slowdown in 2007-8 emerged from the government's advance estimates that put gross domestic product (GDP) growth at 8.7 per cent, raising concern over whether the Indian economy could sustain growth at over 9 per cent in 2008-09.
The estimate, the first in a sequence of five national income estimates put out by the Central Statistical Organisation (CSO) over two years after the first data are released, suggests that high interest rates have impacted manufacturing and construction, dampening overall growth (see table).
However, the CSO's growth estimate is still higher than the Reserve Bank of India's [Get Quote] forecast of 8.5 per cent GDP growth for 2007-08 but lower than Finance Minister P Chidambaram's prediction of 9 per cent. The Planning Commission has targeted an average GDP growth rate of 9 per cent during the 11th Plan (2007-12).
Describing the GDP numbers as lower than expected, the finance minister nevertheless said he is "disappointed but not despondent". "I am reasonably confident that the figures may be revised and economy will grow at close to 9 per cent," he added.
Agriculture is expected to grow at 2.6 per cent in 2007-08, while the industry and services sectors, which together account for over three-quarters of GDP, are projected to grow at 8.6 and 10.6 per cent, respectively.
"The pace of economic growth is in line with growth in potential output. We have estimated that the economy's potential growth rate is between 8 and 8.5 per cent and it will continue to grow in that range", said Joshua Felman, the International Monetary Fund's senior resident representative in India.
The lower estimate for agriculture, however, has caught analysts by surprise. "Slower agricultural growth will affect prices of food products," said Dharmakirti Joshi, principal economist, Crisil.
"There is a possibility of the agriculture growth estimate being revised upwards, if one were to go by the recent estimates of the Prime Minister's Economic Advisory Council (EAC)," said Abheek Barua, chief economist, HDFC Bank [Get Quote].
The EAC had revised upwards the 2007-08 agriculture growth forecast to 3.6 per cent against the earlier forecast of 2.5 per cent.
HDFC's Barua added that the key question is whether the slowdown in GDP growth will sharpen in 2008-09. "We expect growth to be around 8.3 per cent in 2008-09," he said.
The advance estimates for national income also said that gross fixed capital formation (GFCF) is expected to be 34.6 per cent of GDP in 2007-08, higher than the 32.5 per cent of GDP in 2006-07.
"There was a huge increase in demand last year. Now, industry is expanding capacity. The very high investment numbers in the current year are proof of that," IMF's Felman said.
India joins $1trn club officially
Based on Thursday's advance estimate for 2007-08 gross domestic product (GDP) at current prices at Rs 42,83,040 crore (Rs 42.83040 trillion), India can now claim membership of the select list of economies that have an annual national income of over $1 trillion.
The development is basically a factor of the over 12 per cent appreciation of the Indian rupee against the US dollar between April and December 2007.
Although the dollar slipped below Rs 40 many months ago, economists explained that in order to calculate the dollar equivalent figure of national income for India (which only reports such data in its own currency), the average annual exchange rate has to be used.
With the average exchange rate against the US dollar standing at Rs 40.269 this year (April 2007-February 2008), India's 2007-08 GDP is estimated at $1.06 trillion for the current fiscal.
The estimate, the first in a sequence of five national income estimates put out by the Central Statistical Organisation (CSO) over two years after the first data are released, suggests that high interest rates have impacted manufacturing and construction, dampening overall growth (see table).
However, the CSO's growth estimate is still higher than the Reserve Bank of India's [Get Quote] forecast of 8.5 per cent GDP growth for 2007-08 but lower than Finance Minister P Chidambaram's prediction of 9 per cent. The Planning Commission has targeted an average GDP growth rate of 9 per cent during the 11th Plan (2007-12).
Describing the GDP numbers as lower than expected, the finance minister nevertheless said he is "disappointed but not despondent". "I am reasonably confident that the figures may be revised and economy will grow at close to 9 per cent," he added.
Agriculture is expected to grow at 2.6 per cent in 2007-08, while the industry and services sectors, which together account for over three-quarters of GDP, are projected to grow at 8.6 and 10.6 per cent, respectively.
"The pace of economic growth is in line with growth in potential output. We have estimated that the economy's potential growth rate is between 8 and 8.5 per cent and it will continue to grow in that range", said Joshua Felman, the International Monetary Fund's senior resident representative in India.
The lower estimate for agriculture, however, has caught analysts by surprise. "Slower agricultural growth will affect prices of food products," said Dharmakirti Joshi, principal economist, Crisil.
"There is a possibility of the agriculture growth estimate being revised upwards, if one were to go by the recent estimates of the Prime Minister's Economic Advisory Council (EAC)," said Abheek Barua, chief economist, HDFC Bank [Get Quote].
The EAC had revised upwards the 2007-08 agriculture growth forecast to 3.6 per cent against the earlier forecast of 2.5 per cent.
HDFC's Barua added that the key question is whether the slowdown in GDP growth will sharpen in 2008-09. "We expect growth to be around 8.3 per cent in 2008-09," he said.
The advance estimates for national income also said that gross fixed capital formation (GFCF) is expected to be 34.6 per cent of GDP in 2007-08, higher than the 32.5 per cent of GDP in 2006-07.
"There was a huge increase in demand last year. Now, industry is expanding capacity. The very high investment numbers in the current year are proof of that," IMF's Felman said.
India joins $1trn club officially
Based on Thursday's advance estimate for 2007-08 gross domestic product (GDP) at current prices at Rs 42,83,040 crore (Rs 42.83040 trillion), India can now claim membership of the select list of economies that have an annual national income of over $1 trillion.
The development is basically a factor of the over 12 per cent appreciation of the Indian rupee against the US dollar between April and December 2007.
Although the dollar slipped below Rs 40 many months ago, economists explained that in order to calculate the dollar equivalent figure of national income for India (which only reports such data in its own currency), the average annual exchange rate has to be used.
With the average exchange rate against the US dollar standing at Rs 40.269 this year (April 2007-February 2008), India's 2007-08 GDP is estimated at $1.06 trillion for the current fiscal.
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