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GDP moderate, inflation worrisome

As per the latest data, GDP grew by 8.4 per cent in the third quarter of 2007-08 largely due to poor growth in manufacturing and construction sectors, reports Gaurav Choudhury.
Hindustan Times | By Gaurav Choudhury, New Delhi
UPDATED ON MAR 01, 2008 02:39 AM IST

India’s gross domestic product (GDP) grew by 8.4 per cent in the October-December quarter of 2007-08, down from the previous quarter’s 8.9 per cent raising concerns about a possible slowdown in the economy.

There was also worry on the price front with inflation measured by wholesale prices showing signs of closing in on the worrisome 5 per cent level.

Latest official data released by the Central Statistical Organization (CSO) on Friday showed that GDP grew by 8.4 per cent in the third quarter of 2007-08 largely due to poor growth in manufacturing and construction sectors.

The manufacturing sector grew by 9.3 per cent during October-December 2007, down from 11.3 per cent in the corresponding period previous year, while the construction sector growth rate dipped to 8.4 per cent from 10.8 per cent during the same period.

The agriculture sector in the third quarter grew by 3.2 per cent as compared with last year’s 3.4 per cent growth in the same period.

Inflation measured by the wholesale price index (WPI) climbed to 4.89 per cent in the week-ended February 16, up from the previous week's 4.35 per cent gain.

Finance Minister P Chidambaram said inflation remains a downside risk. “Keeping inflation under check is one of the cornerstones of our policy,” he said during his budget 2008-09 speech on Friday.

The pre-budget Economic Survey said that fiscal and currency administrators would have to keep a strong vigil rising foreign capital inflows and high commodity prices as policy makers grapple with options to manage inflation in a period of global economic uncertainty.

It also said behaviour of agricultural prices, including essential consumption items, would be critical, given falling poverty and rapidly rising per capita income.

With a series of interest rates hikes in quick succession the Reserve Bank of India (RBI) has quite aggressively tightened the monetary screws.

While the government has cut import duty on several items including cement and edible oils, RBI has adopted a policy of monetary tightening hiking the cash reserve ratio (CRR) and the repo rate to contain the price line.

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