Strong GDP growth in India but danger signals persist

India and China continue to grow and should be able to weather the storm of the coming second dip of the double-dip recession which is looking ever more likely in Europe and the US – notwithstanding the recent growth in Germany and the UK.

In India the sharp growth in the manufacturing and service sectors could overcome the demand side weakness that is also apparent. The April – June quarter has had the highest growth for 10 quarters. Bringing inflation down from the current 9+% becomes crucial. The good monsoon so far should help. The hotels and tourism sector should get a further boost in the 3rd quarter when the Commonwealth Games is held in Delhi – though the Games themselves seem to be mired in corruption scandals and the late completion of all the venues.

From the Hindu Business Line.

Powered by a manufacturing rebound, the Indian economy has recorded an 8.8 per cent growth during the first quarter of the current fiscal (April – June 2010)

The 8.8 per cent year-on-year increase in the real gross domestic product (GDP) compared with 6 per cent in the same quarter of 2009-10 has been largely due to robust industrial (especially manufacturing) growth from a low base.

The industry, as a whole, grew 11.4 per cent against 4.6 per cent in the corresponding period of the previous fiscal, when factories were struggling to emerge from the slowdown triggered by the global financial crisis of late 2008.

Within industry, manufacturing registered a 12.4 per cent year-on-year jump, against 3.8 per cent during April-June of last fiscal. But, it is not only industry that has done better relative to last year. Even the farm sector and services have notched up higher growth rates for the first quarter. While agriculture has benefitted from a decent rabi harvest that followed a drought-impacted kharif crop, in services, the impetus has come mainly from commerce (trade, hotels, transport and communication) and construction.

But as The Times of India points out, danger signals on the demand side still persist and could threaten future growth.

However, a closer look at the data, say economists and bankers, reveals that the upward trend may not continue for long. StanChart in a report, said that despite strong growth in Q1, slow growth in domestic demand and global slowdown raise doubts about growth in the next few quarters. A research report by Nomura also pointed out that the biggest surprise in India’s growth figures is the substantial divergence between the real GDP (gross domestic product) growth estimated at 8.8% (year-on-year basis) and the real GDP growth at market prices, estimated at 3.7%.

The report explained that the difference between the two is indirect taxes and subsidies offered by the government. Government’s latest figure suggests that taxes are falling while subsidy payments have risen substantially.

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One Response to “Strong GDP growth in India but danger signals persist”

  1. Indian monsoon has been “good”: 10%+ growth possible « The k2p blog Says:

    […] For this year the pre-monsoon forecast was for 98% rainfall but with the La Niña conditions now prevailing, this has increased. Currently Agricultural growth (April – June  2010) is at 2.78% and the “good” mon… […]

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