India's economic growth declined to 7.6 percent for the second quarter of this fiscal, leaving industry with the hope that policy measures taken over the past month will avert a further fall and help revive manufacturing.
The country's growth was 7.9 percent during the first quarter of the fiscal (April-June) and 9.2 percent during the second quarter of 2007-08 (July-September), as per data on gross domestic product (GDP) released by the Central Statistical Organisation (CSO).
Prime Minister Manmohan Singh, Finance Minister P. Chidambaram and Reserve Bank of India (RBI) Governor D. Subbarao have projected the Indian economy to expand by 7-8 percent during the current fiscal year ending March 31, 2009.
The main reason for the fall in the overall economic expansion during the period under review (July-September, 2008) was a low, 5-percent growth in the manufacturing sector, as opposed to 9.2 percent in the like period of last fiscal.
Similarly, agriculture also logged a significantly lower growth of 2.7 percent, as opposed to 4.7 percent, while hospitality, transport and communications expanded the best 10.8 percent against 11 percent during the second quarter of fiscal 2007-08.
What has, however, come as a surprise was the 9.7 percent growth ion construction, as opposed to 11.8 percent in the corresponding period of the previous year.
Financial services, realty and business services also registered a notable growth of 9.2 percent, against 12.4 percent, given the circumstances where real estate companies have been complaining about a major slowdown.
"Economic slowdown in India has been on since June. The real impact of global economic slowdown on the Indian economy will be actually felt in third and fourth quarters," said Sri Ram Khanna, professor and head of department in Delhi School of Economics.
Dalip Kumar, head of projects at the National Council for Applied Economics Research (NCAER), an economic think-tank, said economic depression in US had begun showing its impact on the overall industrial growth in India.
"Our industrial growth has been hit and would continue to deteriorate further next year. This has largely contributed to the downfall of India's economic growth," Kumar told IANS.
The Associated Chambers of Commerce and Industry (Assocham) said that the 7.6 percent growth was satisfactory given the circumstances and expressed confidence that the same would be maintained in the remaining months of the current fiscal.
"Slowly and gradually, interest rates, inflation and input costs are falling down whose collective reflection will fall on the overall growth of GDP," the chamber's president Sajjan Jindal said in a statement.
Another industry lobby, PHD Chamber of Commerce and Industry, presented a somewhat different picture. "The slowdown in is shows that our economic indicators have started weakening with some segments being affected more than others," the chamber said.
"Investment in infrastructure should be increased and an early completion of ongoing projects be effected on a war footing. Attention should be paid on building rural infrastructure to rejuvenate demand in the countryside."
In its economic outlook it said the inflation peak in India seemed to have passed, reflecting a sharp deceleration in prices of metals and petroleum, and going forward all indicators of inflation were expected to ease.
India's economy, which is Asia's third largest, has grown at 9 percent or more in the past three fiscal years but a top official said on Tuesday it was preparing for growth as low as 7 percent in the fiscal year ending March 2009.
'The economy is projected to slow further over the next year and to recover in tandem with the world economy in 2010,' the OECD said.
It said a decline in inflation, which touched an annual rate of almost 13 percent in August, could help restore confidence in the economy more rapidly and support demand and activity.
Annual inflation, as measured by wholesale prices, eased to 8.90 percent in early November.
Constraints imposed by a fiscal reponsibility law had led to soaring off-budget spending and the consolidated fiscal deficit, including off-budget items, would be 10 percent of GDP in fiscal 2008/09, the OECD said.
'A period of fiscal retrenchment seems desirable, focused on making government subsidies available only to those in real need,' it said.
The Indian rupee hit a record low of 50.60 per dollar on Nov. 20 and the OECD said pressure on the currency may limit room for further interest rate cuts 'so that the real rates facing consumers and firms will rise markedly, weighing on domestic demand'.
The central bank has cut 150 basis points from its key lending rate since the global credit crisis spilled over into India's markets in September and October. The key lending rate stands at 7.5 percent.
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