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Erring on the side of optimism

The Central Statistical Organisation’s advance estimate of GDP growth of 7.1 per cent for the current year (2008-09) appears optimistic. As the global crisis started taking its toll on individual economies in September 2008, the IMF and other global institutions have been steadily lowering their estimates of growth for all regions and countries. The Indian economy which, according to official figures, clocked 7.8 per cent growth in the first half of the year must grow in the region of 6.4 per cent during the second half to validate the CSO’s forecast. While its estimates for the third quarter — October to December 2008 — are due only by the end of this month, almost all the other data for this period do not leave much room for confidence. Exports are decelerating and the monthly index of industrial production (IIP) shows the stress on the manufacturing sector, which has traditionally been the key driver of economic growth. The CSO does take note of the sharp fall in industrial growth but expects the services sector to grow at 9.6 per cent, partially offsetting that decline. Industrial growth is anticipated to fall from 8.1 per cent in 2007-08 to 4.82 per cent. Of the two sectors likely to be hit the hardest, ‘manufacturing’ is set to end up with a tally of 4.14 per cent, as against last year’s 8.20 per cent, and ‘construction’ with a figure of 6.46 per cent, as against 10.11 per cent.

On the agriculture front, the expected drop from 4.86 per cent to 2.86 per cent is attributed mainly to the higher base effect and does not reflect any serious slackening. Services, which registered double-digit growth for three consecutive years, are expected to see a modest slowdown. The biggest segment — Trade, Transport, Hotels, and Communication — is forecast to grow at a marginally lower rate. However, the Community, Personal, and Social Services segment, which includes government services, is expected to accelerate from 6.79 per cent to 9.28 per cent, thanks to higher government spending by way of supplementary grants approved by the legislature in October, the two stimulus packages, and higher salaries to staff following the implementation of the Sixth Pay Commission report. The CSO’s advance estimate is in line with two other official forecasts: that of the Prime Minister’s Economic Advisory Council and the Reserve Bank of India. However, it is way above the assessments by many non-official institutions. Finally, as the CSO follows up its advance estimate with quick, provisional, and final estimates, there is every possibility of a downward revision, considering that no end is in sight for the global crisis.

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