Double-digit industrial growth saw the Indian economy expanding 7.4 per cent in 2009-10, despite drought and global slowdown. The gross domestic product (GDP) was Rs 44,64,081 crore (at 2004-05 prices), bettering the earlier government estimate of 7.2 per cent growth over the previous year's Rs 41,54,973 crore.
While manufacturing activity pushed growth, agriculture posted a better-than-expected growth of 0.2 per cent. However, slower growth in services fuelled concerns on sectors such as information technology.
The fourth quarter ending March 31 saw GDP expand 8.6 per cent, even as the government's Central Statistical Organisation revised the third quarter (OctoberNovember 2009) number upwards from 6 to 6.5 per cent. "The numbers are along expected lines and it does not change the diagnosis much. The growth in agriculture is a positive surprise. We have come out of the crisis but the growth drivers are still not as strong as one would like them to be," said Pronab Sen, chief statistician of India and also secretary, ministry of statistics and programme implementation.
Manufacturing grew by a robust 10.8 per cent during 2009-10, as against 8.9 per cent in 2008-09. "The manufacturing sector has grown faster than the services sector. This has not been the case for long and it might portend two things - that manufacturing in India has found its dynamism or that there is a sharp slowdown in the services' sector, primarily because service sector exports have been hit. If the latter is the case, one needs to pay careful attention to this and we may need to work towards increasing our market share in services' exports," said Rajiv Kumar, chief executive and director, Indian Council for Research in International Economic Relations (ICRIER).
Finance Minister Pranab Mukherjee exuded confidence that the economy would expand by over 8.5 per cent in 2010-11.
"on the whole, it is 7.2 per cent-plus (in 2009-10). I have already stated 8.5 per cent, about 8.5 per cent-plus (for the current year)," he told reporters. The higher than expected growth rate also improved the government's fiscal deficit for 2009-10, earlier pegged at 6.7 per cent of GDP. It is likely to be revised to 6.6 per cent.
"Growth has picked up partly because of strong rebound in the manufacturing, mining and quarrying sector and also because of the low statistical base of last year," said Rupa Rege-Nitsure, chief economist, Bank of Baroda.
Inflation, however, remains a concern and this may put pressure on the Reserve Bank of India to increase interest rates. If that happens, it "will derail investments before they actually take off," said Kumar of Icrier.
The financial year 2009-10 was affected by the worst drought in over three decades, followed by floods in some areas which had significantly hit kharif crop production. However, agriculture sprung a surprise on analysts by posting an overall growth of 0.2 per cent during the year, instead of a decline of 0.2 per cent as projected by the advance estimates. "The improved figures for the agriculture sector might be an indication that the farm sector has diversified and other categories like horticulture have driven growth, as they were not as much affected due to drought. It is a pleasant surprise," said D K Joshi , principal economist with research and ratings firm Crisil India Ltd.
Kumar, too, sees a trend towards diversification in agriculture. "It seems the cropping sector wheat, rice, oilseeds has had a smaller share (55-56 per cent) in the total agricultural output, while dairy and poultry have contributed more than 40 per cent. Moreover, their output has not been affected by the monsoon," he added.
Mining and quarrying also posted robust growth of 10.6 per cent in 2009-10, against 1.6 per cent during 2008-09. Construction also grew along expected projections at 6.5 per cent. Trade, hotels, transport and communications grew at 9.3 per cent in 2009-10 as compared with 7.6 per cent in 2008-09. Financing, insurance, real estate and business services grew at 9.7 per cent against 10.1 per cent in 2008-09, while community, social and personal services grew at a markedly lower rate of 5.6 per cent, compared with 13.9 per cent in 2008-09.
The government's final consumption expenditure growth picked up marginally to 11.8 per cent in 2009-10 as against 11.5 per cent in 2008-09. Growth in private final consumption expenditure continued to be slower at 57.6 per cent in 2009-10, against 59.5 per cent in 2008-09. "Not much improvement has been seen in private consumption expenditure and the investments have also not picked up to an extent one would have wished it should. So, even as we are in recovery mode, things are still uncertain on how to achieve an above 8.5 per cent growth next year," added Sen.
Most analysts are, however, optimistic about the sustainability of growth, given the normal monsoon forecast. They said the economy would grow at 8.5 per cent in the current financial year, 2010-11. Frederic Neumann, managing director and co-head of Asian Economics Research, HSBC, said while consumption and services were still lagging, the details suggested growth could be stronger in the coming quarters, lending more urgency to rate hikes by RBI. He also warned about a higher trade deficit.
"As domestic demand growth outstrips demand overseas, the trade deficit may widen sharply. Our foreign exchange strategists have, partly for this reason, highlighted the rupee as one of the currencies in Asia which is likely to underperform," he said.
