29 Nov 2008
The good news is the finance minister’s confidence in India’s growth story has been vindicated. For now! The economy clocked a reasonably robust GDP
growth of 7.6% in the second quarter.
Together with the first quarter GDP growth of 7.9%, that gives us a respectable 7.8% growth for the first half of 2008. At a time when most advanced economies are barely growing or have already tipped into a recession, that is certainly good news.
Even if it is the lowest quarterly GDP growth since the third quarter of 2004-05, surprisingly gross fixed capital formation seems to be holding out. In fact, it was 35.3% during the second quarter, up from 32.3% in the first quarter.
Unfortunately, the bad news is there are a number of clouds to this silver lining. One, the full impact of the global crisis hit us only after the iconic investment bank Lehman Brothers went into liquidation mid-September. Global liquidity dried up and risk aversion, especially against emerging markets like India, increased dramatically. Hence, going forward, third and fourth quarter numbers are likely to be much less encouraging.
Two, with the exception of electricity, gas and water supply, every other sector saw a dip in second-quarter performance, with mining, quarrying and construction and, to a lesser extent community, social and personal services showing a particularly sharp dip.
The Sixth Pay Commission largesse may help reverse some of the decline in services in the next quarter. But there is little reason to expect any improvement in the other two sectors, mining and construction. Given that these are labour-intensive sectors, employing large number of unskilled workers, any slowdown here does not auger well from the welfare perspective.
Add to that the slowdown in manufacturing, which is also likely to intensify as demand contracts, and the picture looks far bleaker than the latest GDP figures would suggest.
For all the resilience shown by the BSE sensex when markets opened in Mumbai after a day’s closure, the recent terror attacks are likely to adversely impact the investment climate. So, not much reason for us to cheer.
Source: http://economictimes.indiatimes.com/
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