subject: Indian Economy: Expanding in the Manufacturing and Service Sector [print this page] Led by strong manufacturing and services growth, the economy expanded 8.8 per cent in the quarter ended June, which has been the fastest pace in nine quarters. Though the performance of the agriculture sector was subdued during the quarter, both the government and economists expect it to pick up in the coming quarters as kharif sowing has been healthy after good monsoons.
"The numbers are quite encouraging. The more encouraging point is 12.4 per cent growth in the manufacturing sector. I do hope it will be possible to maintain this level of growth," said Finance Minister Pranab Mukherjee. He said the government expects the manufacturing sector to create more jobs.
Chief Economic Advisor to the Finance Ministry Kaushik Basu said: "The growth prospects are quite optimistic. It is led by remarkable performance of the manufacturing sector and that in itself speaks very well of the future. Such high quarterly growth in the manufacturing sector has happened only once in India, in 2006-07, and is quite an extraordinary achievement."
A statistical low-base effect also beefed up the Gross Domestic Product (GDP) growth numbers for the first quarter. As a result, analysts expect moderation after the second quarter, with the manufacturing sector already showing signs of running out of steam. "Industry's numbers are likely to moderate in the coming quarters, resulting in full-year growth of 8.4 per cent," said Citi India economist Rohini Malkani.
The economy grew 6 per cent in Q1 FY10 and 8.6 per cent in Q4 FY10. Growth in this fiscal's first quarter has been in line with the expectations of analysts. They saw GDP growth at around 8.5 per cent, which mirrored the government's own projection.
"GDP growth is on expected lines. The overall GDP growth in this fiscal would be slightly better than 8.5 per cent as projected earlier. IIP (index of industrial production) growth might moderate in coming months on base effect, but growth in agriculture will pick up as monsoons are good," said Planning Commission Deputy Chairman Montek Singh Ahluwalia.
"The demand side, therefore, paints a completely different and much weaker picture than the robust outlook presented by the supply side. In our view, domestic demand may have started moderating, but it is surely not as weak as suggested by the demand-side GDP components," said Nomura India economist Sonal Verma. "Indeed, other real activity indicators on auto sales, capital goods output, machinery equipment production and government expenditure all suggest strong domestic demand. The data may be revised higher at a later stage, but the current readings are puzzling," she added.
"I am not that concerned about private expenditure, as business indicators are strong and inflation is expected to come down going ahead, leading to an increase in private consumption. I am more concerned about the flat growth in gross capital formation it shows a lack of investment," added Shanto Ghosh, chief economist at consulting firm Deloitte India.
Indian Economy: Expanding in the Manufacturing and Service Sector
