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India estimates 8.1% GDP growth

This is the fastest growth in nearly 2 yrs, the economy grew 8.5% in 2003/04, boosted by the monsoon rains.

india Updated: Feb 08, 2006 16:25 IST
Reuters
Reuters
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India's economy is estimated to grow 8.1 per cent in the year ending March 2006, boosted by strong growth in manufacturing and services, the government said on Tuesday.

This is the fastest growth in nearly two years. The economy grew 8.5 per cent in 2003/04, boosted by the best monsoon rains in nearly a decade.

KEY POINTS:

- India's GDP series was revised last month. The base year is now 1999/2000. The previous base year was 1993/94.

- Manufacturing, which forms 14.7 percent of GDP, was forecast to grow 9.4 per cent in 2005/06.

- Farm, forestry and fishing, which accounts for 25.3 percent of GDP, was forecast to grow 2.3 per cent.

- Services, including trade, financing and real estate, were forecast to grow 9.8 per cent.

- A Reuters poll in late January forecast 2005/06 growth would be 7.6 per cent.

MARKET REACTION:

The yield on the benchmark 10-year bond was steady at 7.32 per cent barely changed from before the data was released.

The rupee recovered from early lows on robust foreign fund flows into the stock market and was trading at 44.26/27 per dollar after the data was released.

COMMENTARY:

Latest...

A Prasanna, Analyst, ICICI Securities, Mumbai:

"It's higher than we expected. We looked for 7.6 per cent. It looks like the government estimates are higher on the farm sector side and services side. Having said that, this is only an advance estimate and since we have seen some deceleration in the industrial sector in the second half maybe this number will get revised down.

"The key determinant for the coming year will be how the monsoon pans out. Overall on the non-farm side, momentum is still good but there will be some moderation in growth."

Rajeev Malik, Economist at JP Morgan, Singapore:

"These are impressive numbers in line with our expectations of 8 per cent. Underlying growth momentum still suggests that the central bank should continue with policy tightening. The full year growth of 2006/07 (April-March) is estimated at 7 per cent, owing to slight moderation in the manufacturing sector and in services.

Indranil Pan, Chief Economist at Kotak Mahindra Bank, Mumbai:

"The performance appears to be good. However, the higher growth numbers are partially due to the new base announced recently. Services will continue to grow at around the current pace. However we expect some amount of softening in industrial output in FY07 as infrastructure etcetra are at its full capacity. Next year, we expect GDP growth at 7.7 per cent."

Saumitra Chaudhuri, Economic Adviser at rating agency ICRA, New Delhi:

"This is much higher than expected. Mostly it seems the growth has come from services sector. Manufacturing is also strong."

Earlier...

Shubhada Rao, Chief Economist at Yes Bank, Mumbai:

"This is higher than our expectations. Clearly the resurgence in the services sector and the manufacturing sector has pushed the economic growth to a higher trajectory. This reflects robust investment and consumption demand. To sustain this higher growth, going forward, the trigger will have to come from the policies in the budget."

BACKGROUND:

- GDP grew 7.5 per cent in the year ended 2004/05 (April-March).

- The rulngress party-led coalition has pledged reforms to ensure 7-8 per cent annual economic growth, with sustained employment generation.

- Prime Minister Manmohan Singh has said the economy is inching towards 8-10 per cent growth in the next few years.

- Growth in the first half of the fiscal year from April to September was 8.1 per cent compared with a year earlier, boosted by a sharp pick-up in manufacturing output as healthy rural earnings translated into higher domestic spending.

- Normal monsoon rains during July-September boosted farm output, which should trigger demand for goods and services in rural areas, home to 60 per cent of India's 1.1 billion population.

- Industrial output, which accounts for a quarter of GDP, has also been rising to meet demand for cars, televisions and other consumer goods from young consumers benefiting from jobs in the booming technology and back-office service sectors.

First Published: Feb 07, 2006 13:07 IST