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Strong growth with a few caveats

The Central Statistical Organisation's revised estimates of national income released on May 31 paint a flattering picture of the state of the economy. During 2006-07 it registered a 9.4 per cent growth, the highest since 1988-89 when it grew by 10.5 per cent. In that year, the economy was bouncing back from a low base after a severe agricultural drought. Last year's performance is particularly commendable as it comes on top of the 9 per cent growth of 2005-06. Besides, the 9.4 per cent growth figure goes beyond all other estimates including the Reserve Bank of India's 8.5 per cent and the CSO's own earlier projection of 9.2 per cent. It is easy to identify the strong growth drivers as well as the sectors that underperformed in relation to their potential. Manufacturing and services sectors have been growing at double digit rates, the former by 12.3 per cent as against 9.1 per cent in 2005-06. Services grew by 11 per cent, up from 9.8 per cent. However agriculture recorded a lower growth of 2.7 per cent compared to 6 per cent last year. Clearly agricultural revival holds the key to sustaining high growth rates as well as making the growth process more inclusive. At the recent meeting of the National Development Council, Prime Minister Manmohan Singh called for tough decisions and concrete action to achieve a 4 per cent annual growth in agriculture.

At the start of the Eleventh Plan the performance of the economy strengthens the confidence that it has entered a high growth trajectory where an average annual growth rate of 9 per cent or more might become the norm. However, in what could be a reminder that increasing and ever higher growth rates cannot be taken for granted, the CSO, through a report released simultaneously, has estimated economic growth during the last quarter of 2006-07 at 9.1 per cent, which is lower than the 10 per cent achieved in the corresponding period a year earlier. Apart from agriculture, there has been a decline in construction, financial and social services. Some of these sectors, especially construction, have been witnessing robust growth during the earlier quarters. It is too early to say whether these are the first signs of a more general slowdown. It is likely that some of these sectors have started feeling the impact of the recent monetary tightening. Most early forecasts for 2008-09, including one by the RBI have, after factoring in the impact of the anti-inflation strategies, placed the growth rate at less than 9 per cent. That by itself would be a commendable achievement, especially if the accompanying objectives of price stability and inclusive growth are met.

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