News: India grew at 9%, faster than 8.4% estimated last year

(DNA 31/01/2007) Mumbai - India’s 9.1% growth in the first half of the current financial year, it seems, is nothing to write home about. The country had achieved the 9% growth last year itself.

On Wednesday, the Central Statistical Organisation (CSO) on Wednesday revised its May 31, 2006, estimates of GDP growth from 8.4% to 9%, the highest growth in two decades, closing the gap between India and the world’s fastest-growing economy, China.

The revision comes about largely because agricultural growth was revised from 3.9% to 6%.
“This augurs well for the current financial year”, finance minister P Chidambaram said, “although we will have to see what will be its impact on the growth rate this year as the base figures have been revised.”

What enthuses economists is the fact that the new numbers underscore the strength of consumption-led growth in the economy.
Rajeev Malik, JPMorgan Chase Bank’s vice-president and senior economist, told DNA Money the revised GDP estimate contains new information on expenditure GDP, which is reported only on annual frequency with a year’s lag.

“The production GDP details show that the revision owes mainly to agriculture and industry sectors. Following the revisions, India’s GDP growth has averaged 8.3% in the past three years.”

Malik said the expenditure GDP details “confirm that the strength of domestic demand is powered by private consumption and investment spending.”

Importantly, savings and investment rates have been steadily rising.
Gross domestic saving constituted 32.4% of the GDP at market prices, up from 31.1% the previous year.

The rate of gross capital formation was 33.8% in 2005-06, up from 31.5% the previous year.
This meant that India saved 32.4% of its GDP and invested at a higher 33.8% rate, explaining what was driving the growth of the economy.

Noting that the government had not announced revised quarterly GDP data, Malik said that “for now, JPMorgan maintains its current GDP growth forecasts of 8.5% and 7.5% for 2006-07 and 2007-08, respectively,” but would revisit the forecast following the announcement of GDP figures for Q4 on February 28.

Ajit Ranade, chief economist of the Aditya Birla Group, concurred with Chidambaram on the impact of higher base effect going forward, but he doesn’t feel a need for alarm.

“But in the first half, we have done around 9.1%, we now have the RBI projecting 50 basis points more growth to 8.5%-9%. I don’t see why we why we should not cross 8%, this year - it should be a breeze.”