The gross domestic product clocked a robust growth of 8.9 per cent in the first quarter of the current fiscal year over the same period last year, aided by a strong performance in the manufacturing sector, the government said on Friday.
The government expects a GDP growth of 8 per cent this year. The growth rate in April-June has set the pace for it and given a positive indication that tax revenues can turn buoyant.
The news came as the government was grappling with rising expenses, both in development-oriented plan spending and unproductive non-plan spending, which threaten possible slippages in meeting fiscal- and revenue-deficit targets.
While agricultural sector was stagnant at 3.4 per cent growth in the first quarter, the manufacturing sector made up with a healthy 11.3 per cent growth over the period a year ago.
"This is the highest quarterly growth recorded in the past several years," said Finance Minister P Chidambaram.
"The next best was 8.5 per cent in the first quarter of last year, followed by 7.9 per cent in 2004-05. The three best quarterly growths have been achieved during the first three years of the UPA government."
TK Bhaumik, chief economist at Reliance Industries Limited, said the high GDP growth rate might be a pointer. "I would not be surprised if the economy clocks a growth of 9.5 per cent in 2006-07," he said.
While there was optimism, meeting both fiscal and revenue deficit targets would daunt PM Manmohan Singh and his team. Trying to allay worries, Chidambaram said, "There are some concerns about fiscal-deficit and revenue-deficit figures, but I am confident that the targets will be met for the financial year."
He said fiscal deficit touched Rs 90,678 crore in the first five months of the financial year, accounting for 61 per cent of the full-year budgetary target of Rs 148,686 crore.
Aiming to prepare the coalition partners, particularly the Left, to support reformist bills, Chidambaram called for political support to push forward reforms in areas like banking, insurance, aviation and pension. Resuming equity sales in profit-making public-sector undertakings is an even bigger task. "We have to find the political space to push forward reforms," he said.
Chidambaram, who met RBI Governor Y Venugopal Reddy on Friday, was also concerned about inflation. "I must admit that there is some pressure on food prices. The impact of supply-demand mismatch in wheat and pulses continues to affect the inflation index, especially the Consumer Price Index," he said.