The Indian Economy Blog

September 30, 2005

GDP growth clocks 8.1%

Filed under: Growth — Reuben Abraham @ 1:38 pm

To the surprise of most analysts, India’s economy grew at 8.1% in the first quarter despite lagging reforms and high oil prices. GDP growth is being powered yet again by the manufacturing sector, which grew at 11.3%, and by higher than expected growth in the services sector, which accounts for over 50% of the economy. This is what the breakdown looks like across sectors.

The agriculture sector output can be expected to increase in the next quarter, thanks to a normal monsoon. So, I am guessing growth will in fact exceed the 7% mark for the year, which is the government’s target. Nonetheless, it might be advisable to watch out for inflation and higher interest rates, not to mention the growing current-account deficit given high oil prices.

“Inflation will likely accelerate and the central bank may be forced to raise interest rates by a quarter point next month,” said D. H. Pai Panandiker, director general at RPG Foundation, an economic policy group in New Delhi. A separate government report today showed the inflation rate accelerated to a seven-week high of 3.75 percent in the week ended Sept. 17, after the government raised fuel prices. The Reserve Bank of India on July 26 held its benchmark lending rate at 6 percent, where it has stood since April 2003. That’s the lowest since May 1973. The bank also left its overnight borrowing rate at 5 percent and said inflation probably won’t exceed its target of 5.5 percent for the fiscal year. The central bank’s next policy statement is due Oct. 25.

India will be able to keep inflation “within tolerable limits,” Finance Minister Palaniappan Chidambaram told reporters in New Delhi today. India needs to persist with economic changes to increase industrial growth and generate surpluses, he said.

I certainly hope the central government will not use these growth rates to delay much-needed reforms. If this is the sort of growth that can be pulled off minus any significant reform (not rocking the boat is not reform), I think 10% GDP growth is well within reach, if crucial reforms (labour laws, power sector reform etc) can be undertaken. Hopefully, that’s how the PM and the FM will frame the issue as well.

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  1. ‘If this is the sort of growth that can be pulled off minus any significant reform (not rocking the boat is not reform),’
    i disagre with you on this..all signs seem to indicate that the left and some sections in the congress in particular wish to undo whatever little reform has been undertaken until now.

    Comment by kuffir — September 30, 2005 @ 3:56 pm

  2. I don’t see how the political environment in the near future is going to change to allow the necessary reforms. The congress government should have used the rural employment garruntee act as a carrot to the CPI, dangling it in front whenever support was needed to pursue necessary reforms. Instead, the only notable reform undertaken prior to the welfare bill has been implementation of VAT.

    Perhaps Congress can threaten the CPI to openly reduce the bills budget, or secretly threaten to siphon off funds for infrastructure projects, as leverage for further reform.

    Comment by Patel — September 30, 2005 @ 5:10 pm

  3. There is always the possibility of the BJP working in tandem with the Congress on crucial reforms, if only they could think of the national interest, for a change. But, in India, the role of the opposition is just that — TO OPPOSE, no matter how sound the ideas they’re opposing might be.

    Comment by Reuben Abraham — September 30, 2005 @ 5:33 pm

  4. I’m a bit puzzled by your first line which seems to imply that services accounts for over 50% of the economy. Is that right? Can you point a reference to such a statistic?

    Comment by Shyam — September 30, 2005 @ 10:06 pm

  5. I meant 50% of GDP. Nothing new here. Back in 1998, Services aready accounted for 51% of GDP. You could find this by doing a simple google search, but here’s a site for you anyways —

    Comment by Reuben Abraham — October 1, 2005 @ 12:34 am

  6. The best part of the good news is the growth in manufacturing — the kind of thing India needs to generate employment on a significant scale. It goes to show that if UPA government is able to fix its infrastructure and labour laws, it can well achieve the promises made in its manifesto within its term.

    Again, there is no reason to believe that agriculture is essentially a slow-growth sector; with necessary reforms (and again, infrastructure) agriculture has the potential to grow faster.

    Comment by Nitin — October 1, 2005 @ 3:08 am

  7. India’s Industrial Growth Is One Part Hair Oil: Andy Mukherjee

    I wonder what impact this had on the 8.1% growth registered. I also, wonder if playing with figures as the article suggests is entirely bad. China for a long time was accused of bumping growth figures, which probably did marginally help increase FDI, needless to say at the expense of their credibility.

    However, in the Indian case you would probably see greater FII which unlike FDI can be very fickle

    Comment by Patel — October 1, 2005 @ 8:53 pm

  8. Patel, people generally accept the figure, quote it, and requote it. Few bother to pay attention to how the figure is generated. The reality is that any government can basically choose their GDP figure within certain reasonable bounds, typically by adjusting the measurement methodology.

    Comment by walker — October 1, 2005 @ 10:51 pm

  9. Q) Does anyone know what percenatage of the economy agriculture constitutes in other countries — China, Indonesia, Malaysia, Thailand, Korea? What changes have occurred over the last few decades there — growth, innovation, new practices, others?

    Comment by Prashant Kothari — October 3, 2005 @ 4:41 am

  10. [...] xpected growth in the services sector, which accounts for over 50% of the economy.” (The Indian Economy blog) IPO Information 150 shares of this prediction [IN-GDP-805) ar [...]

    Pingback by Indian Economy: Will grow over 8% in Q3/05 at The PublicGyan Blog — October 3, 2005 @ 7:55 am

  11. well ,
    you people seem to anticipate a lot about the indian economy, sure we can help specially by pressurising the government to open up more FDI so that we can remove that ‘factory of the world’ tag of china and place india instead…………….
    but do you think it is a joke?
    a lot needs to be done
    1.better infrastructure
    2.lesser corruption
    3.better labour laws
    4.better political situation

    india is far from that
    all of us you know eye white collar jobs and wan’t maximum pay , this will reduce our competitiveness .
    moreover in india there are widespread strikes, and the atmosphere unlike china’s is not businesslike and if workers frequently go to strike manufacturing in india will not be favourable

    moreover , don’t you know unlike a few of us most indians highly covet the ‘IMPORTED’ OR MADE IN ANY OTHER COUNTRY EXCEPT INDIA TAG , this actually means that the product is manufactured in any other country but india and if we create an invironment when indians favour highly the ‘MADE IN INDIA’ tag only then shall the manufacturing grow inspite of poor infrastructure and labour laws..
    chinese are highly disciplined and seldom go on strikes..
    the gurgaon hyundai strikes fiasco shows how indians prefer to just go on strikes for wage hikes..
    chinese hardly wan’t wage hikes even after a decade oh high growth..
    and we rather than waiting another decade or so wan’t wage hikes now itself..

    have you ever seen all your products from cars to sauces and noodles whether they are made in india??
    if you wan’t manufacturing growth % to increase despite government not bloody hell doing anything than better start seeing and prefering those products which are ‘MADE IN INDIA’ ..

    english is our key to IT industry but china speaks chinese , japan speaks japanese, and so on ,,
    therefore we need to do something about our hindi our language..
    yes even china has as diverse languages as we have..
    chinese thus speak differently but all are educated to write but one script chinese unlike us..
    for which they are ready to work hard..
    i don’t mean to be someone professing to use everything indian but if you really want manufacturing and hindi to not go the sanskrit way than better do some of what i have said…..
    we still i feel need a lot more..
    how many celebrities have fully desi houses free from any imported stuff?
    I FEAR!
    imported means we buy what is produced in a factory or what is manufactured in a factory of another’s country..
    means buy coveting imported stuff we are but in practise increasing the growth rate of manufacturing in all countries but us..
    so please next time you get two cars ,you are a rich fellow, chose the ‘MADE IN INDIA’ one.
    its made by your own is of a
    foriegn companie does not mean that don’t buy the car , in fact most foreign companies manufacture articles in our own country..
    this was of course an example..
    chinese have a literacy percantage of 90% (both men and women) which is anyone who can write chinese
    whereas ours instead of being anyone who can read and write hindi has really no meaning becoz of each community patronizing thier language..
    i choose hindi not becoz i am a hindu but bcoz,like the chinese i have realised how one written language helps..
    spoken language can be varied..
    i say about languages bcoz you and i may converse in english but growth has to spread throughout india in rural etc and for that a uniform written language is required..
    can anyone tell me how many hindi (or better so indian)(please don’t call that bollywood)films are shot in india..??
    most high profile ones are shot in foreign places..??
    cleanliness is also importan for our tourism industry to develop??

    i support the growth of very very high scyscrapers in mumbai..
    open space is of course necessary but not at the cost of development ..
    large building promote tourism..
    ALL OF US CREATE HURDLES IN DEVELOPMENT BY FILING PILs against any highrise project..

    you may also read my article on FDI IN RETAIL::
    i love india and wan’t india to develop infrastructurily and lower its poverty, illiteracy and corruption.

    lots of people have been talking about what FDI IN RETAIL will do to india.

    sure, even i anticipate it as well as i fear it!!!!!!!!
    its good if retailing companies invest in india whatever proceeds they get in profit…………………………but it is not good if all is gonna go to there restpective countries……………………….but indian population is big and i think there is space for all, over here in retailing ………………..whether big outlets or skimmy mom and pop stores………………….but i have to get more information on FDI in retailing ………….. its gains and implications……………..some say it will lead to mass unemployment……………………..others say that it will lead to cheaper goods , employment and other benifits…………………………………..i feel small stores instead of protesting should become competitive and plan out strategies and other things……………………………………….but i do fear the thing that once these outlets capture the markets they would virtually dictate prices to new higher levels…………………………………………………………………………but for this i feel FDI should be opened such that all employed should be local indians and ………………………………….such that a large number of companies including indian should always be competing……………………………..thus noone will ever be able to capture the market completely………………………………………and prices would remain low……………………………………..but still i am unclear about the implications of FDI in retail………………………….it should provide employment and make india richer not the country from which the retail outlet has come…………………………………………………..i am confused about its true implications……………………………i request a multinational company to set up an e-page describing gain and impications of an open FDI in retail in india and would prefer if a large no. of examples from china’s reform………….and what has benifited it and what has not benifited it in the field of it’s opening up FDI in it’s retail trade………………………….

    Comment by indiathegreat — October 20, 2005 @ 9:42 am

  12. hey,
    indiathegreat , i sure agree on your views !
    you are very passionate about india indeed!!!!!!!!

    Comment by rakesh — October 21, 2005 @ 2:02 am

  13. I seriously don’t know if there are any sense to the posts made here. This post shows a grossly wrong picture.. as if a 8% gdp growth is all we needed to see. It gives a false picture that all is well with indian economy. (well, anoter one of those mere cut n pastes)

    One of the funniest sentences in this post is … “To the surprise of most analysts, India’s economy grew at 8.1% ”

    I don’t which analysts were surprised :-)

    But I will try to give a true picture..

    1. The credit-to-deposit ratio is close to a 19-year high of 63%,

    2. household debt is significantly above fair levels supported by India’s per capital income,

    3. government debt to GDP is at all time high of 80%, rupee is overvalued by about 9% and trade deficit has risen to an all-time high of 5.4% while balance of payments has been boosted by less stable foreign capital.

    4. rising interest rates, slowing exports and a sharp rise in global oil prices are likely to trigger a further slowdown in industrial growth over the next few months.

    Comment by USD — October 23, 2005 @ 5:32 pm

  14. So what?

    China has sustained 9.2% GDP growth for the past 25 years.

    Comment by Santosh — April 1, 2006 @ 5:19 am

  15. China are able to obtain 9.2% economy growth without fail for the last 25 yrs is because of their stringent labour law,strong political party on control and eargeness and hunger to develop the country by every individual people of china.Unlike in INDIA,Where clearing the people from SLUMS for development takes years,The opposition takes this opputunity to sell their symbols to the people for own political benefit.Anybody and any party should put development in front to create a GREAT INDIA.Personnel grudges and political differences should not be based to deter any development for the betterment of the people.Always put india and its future in front.
    Switching form the current attitude to the recommended one will see india sustaining double than the current GDP growth in short spell.We are no inferior to others,what is lacking is the cooperations, understanding.commitment and some sacrificing.
    After adopting the top recommended policies,then you can see india a develop nation even the West will shy away from us.Pround to be an indian and will forever an indian.

    Comment by sivakumar malaysia — April 19, 2006 @ 4:59 am

    i find this scary as an indian-american.

    Year : 2030

    Place : IBM , USA (Two Americans Talking)

    Currency Conversion Rate : INR 1 Rs = USD $ 100

    Alex: Hi John, you didn’t come yesterday to office?

    John: Yeah, I was in Indian Embassy for stamping.

    Alex: Oh really, what happened, I heard that nowadays it has become very strict.

    John: Yeah, but I managed to get it.

    Alex: How long it took to get it stamped?

    John: Oh, it was nasty man, long queue. Bill Gates was standing in front of me and they played with him like anything. That’s why it got delayed. I went there at 2 am itself and waited and returned by 4pm .

    Alex: Really? In India, it is a matter of an hour to get stamped for USA

    John: Yeah, but that is because who in India will be interested in coming to USAman, their economy has been booming.

    Alex: So, when are you leaving?

    John: Anytime, after receiving my tickets from the client in India and you know, I will be getting a chance to fly Air-India. Sort of dream come true.

    Alex: How long are you going to stay in India.

    John: What do you mean by how long? I will be settled in India , my company has promised me that they will process my Hara Patta ..(green card)

    Alex: Really, lucky person man, it is very difficult to get a Hara Patta in India .

    John: Yeah, that’s why, I am planning to marry an Indian girl there.

    Alex: But you can find lots of US girls in Hyderabad, Bangalore and Mumbai.

    John: But, I prefer Indian girls because they are beautiful and cultured.

    Alex: Where did you get the offer, Bangalore ?

    John: Yeah, salary is good there, but cost of living is quite high, it is Rs. 1000/- for a single room accommodation.

    Alex: I see, that’s too much for US people, Rs.1/- =$100/-. Oh God! what about in Hyderabad , Mumbai?

    John: No idea, but it is less than what we have in Bangalore . It is like the world headquarters of software

    Alex: I heard, almost all the Indians are having one personal Robot for help.

    John: You can get a BMW car for Rs. 5000/-, and a personal Robot for less than Rs.7500/-. But my dream is to purchase Ambassador, which costs Rs.2,00,000/- but has got a lovely design.

    Alex: By the way, who is your client?

    John: Subbarao and Apparao Associates, a pure Indian company, specializing in Embedded Software.

    Alex: Oh, really, lucky to work in a pure Indian company. They are really intelligent and unlike American Body shoppers who have opened their Fly-by-night outfits in India. Indian companies pay you in full even when you are on bench.

    My friend Paul Allen, it seems, used his bench time to visit Bihar, the most livable place in India , probably world. There you have full freedom and no restrictions. You can do whatever you want! I wonder how that state has perfected that system.

    John: Yeah man!, you are right. I hope our America also follows their footsteps.

    Alex: How are you going to cope with their language?

    John: Why not? From my school days I have been learning Hindi as my first language here at New York. At the Consulate they tested my proficiency in Hindi and were quite impressed by my cent per cent score in TOHIL i.e. Test of Hindi as International Language.

    Alex: So, you are going to have fun there.

    John: Yeah, I will be traveling in the world’s fastest train, world’s largest theme park, and the famous Hollywood where you can see actors like, Rhythmic, Shah Ruche Khan and all. SeaWorld is also near Hollywood .

    Alex: You know, the PM is scheduled to visit US next year, he may then relax the number of visas.

    John: That’s true. Last month, Mahayana Murthy visited White House and donated Rs. 2000/- for infrastructure development at aSiliconValleyand has promised more if we follow the model of High-Tech City of Bangalore . Bill Gates also got a chance of meeting him. Very lucky person.

    Alex: But, Indian government is planning to split Narayanamurthy’s Infosys.

    John: He is a hard worker man, he can build any number of Infosys like this. Every minute he is getting Rs. 1000/-. It seems, if you keep all his money converted as Rs. 100/- notes you can reach Pluto.

    Alex: OK, Good Luck John.

    John: Same to you Alex. And don’t go to Consulate in a “Kurta Pyjama” because they will think you are too Indianised and may doubt you will never come back and hence your Non-Immigrant Visa may get rejected. But don’t forget to say ” Namaste, aap kaise hai ” to the Visa officer at Window 5. It seems he likes that and will not give you a visa if you don’t greet him that way.

    Comment by James — August 29, 2006 @ 1:03 am

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