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Indian economy on high growth path

It grew by an impressive 9.2 per cent during the second quarter of 2006-07 taking the first half GDP growth to 9.1 per cent, writes Gaurav Choudhury.

india Updated: Dec 29, 2006 19:32 IST

The Indian economy is on the fulcrum of an ever-increasing growth curve. It grew by an impressive 9.2 per cent during the second quarter (Q2) of 2006-07 (July to September) taking the first half gross domestic product (GDP) growth to 9.1 per cent. In the first quarter (Q1) the growth had been only slightly less robust at 8.9 per cent.

The growth in GDP would have been still higher if agriculture growth had not slumped to 1.7 per cent in Q2. Industry and services both recorded massive improvements during this period at 10.3 per cent and 10.9 per cent.

Such high growth has led forecasters to raise GDP projections for the current year. Most analysts had earlier estimated that GDP growth in 2006-07 would be lower than last year's 8.4 per cent. (CII had made a forecast of around eight per cent). The actual growth has exceeded all expectations.

Infrastructure - rather, the lack of it - remains, however, a major drag on the economy. Even the finance ministry has been crying itself hoarse on the need to reduce revenue expenditure to enable larger public investment in the sector.

"Weak infrastructure continues to be the Achilles Heel of the Indian economy. Fiscal space needs to be created by cutting down revenue expenditure, including subsidies, to enhance public investment in specified infrastructure where cost recovery is not possible," the Finance Ministry observed in its Mid-Year Review of the economy.

Inflationary pressures have also marked the first six months of the current financial year. The point-to-point inflation rate, based on the Wholesale Price Index (WPI) reached a peak of 5.5 per cent in mid-June 2006.

Yet economists seem bullish on the growth prospects of the economy during the coming months. "Based on the evolving nature of the current economic situation and indicators of a prospective nature, we expect the GDP in the second half of the 2006-07 to grow by 8.2 per cent, with a rebound in the performance of agriculture to three per cent, and a marginal slowdown in the growth of industry and services to 9.1 per cent and 9.7 per cent respectively", maintains the latest 'State of the Economy' report of the CII.

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First Published: Dec 29, 2006 18:39 IST