India's GDP beats forecast with highest growth rate of 9.4% in 18 years
The Indian economy grew a whopping 9.4% in 2006-07, faster than the advance estimate of 9.2%, pushing the absolute size of the economy to Rs 40 lakh crore or $1 trillion, at current market prices. Savings and investment touched record levels, at 32.4% and 33.8% of GDP respectively. The only time the economy has grown faster was in 1988-89, when the growth rate touched 10.5%, recovering from a crippling drought the year before. In contrast, the growth in 2006-07 comes on top of 9% growth the year before, 7.5% the year before that and 8.5% in 2003-04.Moreover, per capita income has registered a growth of 8.4% last fiscal, which is historic by Indian as well as world standards. Manufacturing and services drove the surge, while farm growth actually slackened, as compared to 2005-06.
Finance minister P Chidambaram said the results confirm the belief that the “Indian economy has shifted to a higher growth trajectory.” The minister emphasised the criticality of growth, saying “high growth generates its own momentum. With high growth comes high investment, which, in turn, reinforces growth itself.” Mr Chidambaram drew attention to the linkage between high growth and high prices, saying that “high growth leads to high demand which puts pressure on prices until supplies catch up.” Asked if the growth rates in the current fiscal would be higher, the minister said, “We have capacity to grow at the same high rate of growth, but whether objective conditions will be able to deliver a growth rate higher than 9.4%, I can’t say. The aim is to keep the growth rate at a level higher than 9%.”
According to data on revised estimates of annual national income, released by the Central Statistical Organisation (CSO) on Wednesday, the manufacturing and services sector grew by 12.3% and 11% respectively in 2006-07. While the estimates for manufacturing are higher than 11.3% projected earlier, the growth of services was estimated higher previously at 11.2%. “Consumption and investments, both have driven growth. The 9.4% growth is a step up from the previous estimate of 9.2% owing to the robust growth of manufacturing,” economic advisory council member Saumitra Chaudhary said. Real per capital income, which reflects the average income of each individual in the population, also clocked in a higher growth of 8.4% in 2006-07 compared to 7.4% in 2005-06 and 5.7% in 2004-05.
DK Joshi, principal economist, Crisil, said, “The growth is mainly powered by the non-agricultural sectors such as manufacturing and services, especially telecom, trade and construction.” This also shows that monetary tightening measures taken by the RBI is yet to impact growth, he added. Mr Chidambaram said, “The time has come to shed lingering doubts about the sustainability of high growth and scepticism about the shift to a high growth trajectory.” “I would argue that the high growth that we have witnessed in the three years of the UPA government needs to be sustained with utmost care, because that is the way forward to eradicate poverty, generate quality jobs and improve the human development indicators,” the minister continued. The need for inclusive growth was reiterated. Releasing the audited figures for fiscal and revenue deficit, the minister said while fiscal deficit was 3.5% of GDP, revenue deficit, as reported by the controller general of accounts, stood at 2%, better than the budget estimates of 2.1%.
Allaying fears about the adverse impacts of the rising rupee on certain sectors, Mr Chidambaram said the government has taken note of concerns of one or two sectors that have been affected and that their problems would be addressed. “I have received representations regarding textile exports,” he said. The rupee has been strengthening against the dollar for the last couple of months, touching a nine-year high of Rs 40.28 per dollar early this week. Financing, insurance, real estate and business services clocked in a high of 10.6% in 2006-07, down from the earlier estimates of 11.1% and a little higher than 10.9% achieved in 2005-06. Mining and quarrying grew by 5.1% (3.6% last year), while electricity, gas and water supply grew at 7.4% in 2006-07 as against 5.3% last fiscal.
Referring to the excessive foreign fund inflow on account of borrowings by Indian companies in the last fiscal, the minister said, “It reflects the ability of Indian industry to attract capital at very competitive rates. However, the other side is that it increases money supply and puts pressure on managing the supply. This involves a tight balancing act between the RBI and government. We’ve been fairly successful in balancing the need for capital and to maintain price stability. We need to continue to do the balancing act, we cannot turn away capital.” Inflows through the external commercial borrowings window crossed $25 billion in the last fiscal, way above the government’s internal cap of $22 billion.
Source: The Economic Times
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