News: 8.9% - Indian growth story only gets better

(DNA 30/09/2006) New Delhi - It’s been a busy summer for the hotel industry. There has been more than 12% growth in room nights. And enquiries are pouring in, says Rattan Keswani, vice-president, Oberoi Hotels & Resorts.

A clue to what’s happening: Siddharth Roy, economic adviser to Tata Services, has been meeting one foreign delegation every week. And domestic tourism has grown 40%, according to Ajay Bakaya, executive director, Sarovar Hotels.

At the end of August, India had 164.3 million telecom subscribers. Over the past year, the month-on-month growth in mobile subscriber numbers has ranged from 3.7% to 5.9%.

All that has added up to a mind-blowing 8.9% growth of the economy in the first quarter (Q1) of 2006-07 - among the fastest quarterly growth rates since the late 1990s - on the back of an 8.5% growth in Q1 of 2005-06.

Propelling this growth was a 13.2% surge in the trade, hotels, transport, and communication sectors. The other top performer was the manufacturing sector as factories churned out 11.3% more goods in Q1 this year. Services as a whole grew 10.5% on the back of 9.7% growth in last year’s Q1.

All this has improved the prospects of the economy growing at 8% in 2006-07. Investment bank JP Morgan has stepped up its growth forecast from 7.5% to 8%. But Ajit Ranade, chief economist, Aditya Birla Group, cautiously predicts 7.3% growth, factoring in some slowing later in the year.

If the economy does grow by 8%, it will be for the second consecutive year and third in four years. “This is one of the best phases the economy has ever had,” says Gaurav Kapur, senior economist, ABN Amro.

But most economists are blasé about the numbers. “Get used to it,” shrugs Surjit Bhalla, managing director, Ox[u]s Investments. “We’ve clearly moved on to a new growth trajectory.”

Finance Minister P Chidambaram has been quick to claim credit for his government. “In every quarter but one of the UPA government, GDP grew by over 7%,” he said at a press briefing.

Few, though, are willing to concede the point to him. “The difference in performance between government-controlled sectors like mining and electricity and those where prices are determined by the market is becoming sharper,” says Rajiv Kumar, director, Indian Council of Research in International Economic Relations.

But lagging agriculture has sounded a warning note. Sure, it sustained 3.4% growth for two consecutive years, but that is nowhere near enough, says Saugato Bhattacharya, vice-president of business and research, UTI Bank. Agriculture, he says, will be the key to sustaining growth and farm surpluses will be the next boost factor in the economy.

Nor can growth be sustained if the electricity sector continues to do poorly, notes Roy. A rise in interest rates could also spook the growth story.

Perhaps sensing this, Chidambaram promised to ensure that manufacturing gets the credit it needs and at reasonable rates. Kumar agrees: “The Reserve Bank should let the growth momentum continue and not do anything to disturb it.”