Brokers and economists cautiously cheered the country’s record economic growth for 2006/07 reported on Thursday, as concerns of a further rise in interest rates and sustainability of growth weighed heavily on their minds.
The government said gross domestic product (GDP) grew by 9.4 per cent in the past fiscal year, above its own forecast of 9.2 per cent.
“The latest data indicate positive happenings in the economy,” said Deven Choksey, managing director of KR Choksey Shares and Securities.
“The overall scenario is positive. FII (foreign institutional investor) inflow during the first quarter itself crossed $6.5 billion and about $30 billion are expected to flow in as foreign direct investment (FDI),” he said.
But he added that apprehensions over higher interest rates that could choke growth were real. “Against the general perception, companies are saying that their growth is unaffected so far and are likely to announce good results. As long as the corporate sector maintains a growth of 17 to 18 per cent there is nothing to worry for the markets,” he said.
“Essentially, stupendous growth witnessed by manufacturing and services sector offset the lacklustre growth in the agriculture sector,” said Anubhuti Sahay, associate economist at Standard Chartered Bank.
“We expect the growth rate to slow down in the coming quarters as rate hikes throws their weight on these (manufacturing and service) sectors. We can see some signs of slow down in consumption demand, with lesser home loan enquiries, lower automobile sales, slow non-food credit growth rate etc, she said.
A Prasanna, economist at ICICI Securities said the higher growth rate was unlikely to impact the current scenario for growth, but there was a build-up of expectations that interest rates could be pushed up by another 0.5 per cent.
“The government is projecting the growth to be above 9 per cent level to aid the sentiment. But the private analysts and to some extent RBI are putting this at 8.5 per cent. The latest data is unlikely to affect these sentiments,” he said.
Sachchidanand Shukla, economist at Enam Securities, said high interest rates and concerns over global commodity prices remained issues of concern, as also an outlook on demand after manufacturing and services powered GDP growth.
“Already there are signs of a softening of consumption in the durables sector, though there is no such evidence for overall retail consumption slowdown,” he said.
He also added that the “unabated” flow of foreign capital could trigger another increase in the cash reserve ratio (CRR), the share of deposits that banks must hold with the Reserve Bank of India.
This typically squeezes money out of the system and makes loans less easy to get, hurting growth sentiments.