India buoyant despite lower economic growth rate

India buoyant despite lower economic growth rate

Asian Economic Monitor, The Statesman, Asia News Network, New Delhi, India

During the mid-term appraisal of India's 10th Five-Year Plan in June, Prime Minister Dr Manmohan Singh indicated a growth target of 7 percent to 8 percent over the next two years.

He admitted that the performance so far was well below the target of 8.1 percent, mainly on account of a low agriculture growth of around 1.5 percent.

With economic growth averaging 6.5 percent in the past three years, even with an acceleration, the country could not achieve the original 10th Plan target of 8 percent growth over the Plan period as a whole, the prime minister said.

Despite this modest appraisal, economic indicators show a healthy growth in all sectorsagriculture, manufacturing and services.Inc," in particular, is fairly upbeat about the country's economic resilience and expects a healthy growth in the current fiscal year.

The Confederation of Indian Industry (CII), for instance, expects a sustained growth in industrial output this year and a three-year increase of 24.8 percent. It expects the industry sector of India's GDP to grow by 8.1 percent in the current financial year, almost as fast as the 8.3 percent growth of 2004- 05.

The CII expects this year's growth to be broad-based with all sectors of the economy doing well. It has forecast faster growth in agriculture at 3 percent and high growth rates of 8.1 percent for manufacturing and 8.3 percent in services - similar to lastgrowth rates in these two areas.

This high growth rate in the economy was reflected in the corporate scorecard of India Inc, with most companies, cutting across industry sectors, reporting higher profits and higher sales for the year ended March 31, 2005.

The official figures for the first quarter ending June, 2005 show a mixed bag as compared with the same quarter last fiscal, with 20.3 percent higher tax collection this year and a lower inflation rate of 4.10 percent in the week ended June 18, 2005 as against 6.62 percent a year ago.

However, growth in the overall industrial as well as core infrastructure sectors was lower this quarter. The fiscal deficit in 2004-05 was higher though revenue deficit declined as compared with 2003-04.

Agricultural growth is expected to pick up, while overall industrial growth was 8.8 percent in April, 2005 compared with 8.9 percent in April, 2004.

Core infrastructure sectors achieved an average growth rate of 4.9 percent in the second quarter this year, compared with 8.2 percent in the corresponding quarter last year.

The broad money stock (M3) in the first half increased by 3.9 percent compared with the growth rate of 2.7 percent in the corresponding period last year. The year-on-year growth was 14.2 percent (exclusive of conversion, 14.1 percent) compared with 15.3 percent in the same period last year.

Net foreign exchange assets (NFA) of the banking sector registered a decline of 2.5 percent in the first half this year compared with a growth of 9.1 percent in the same period last year.

As at June 10, the bank rate was 6 percent, the same as the corresponding date of last year. Call money rates (borrowing as well as lending) were in the range of 4 percent to 5.75 percent compared with 3.5 percent to 5.5 percent on the corresponding date last year.

With the country witnessing an infrastructure boom, the inflow of foreign institutional investments (FIIs) has sent the stock market on a bull run.

The consumer is on the receiving end, with spending on the rise as well. Favourable bank interest rates have also meant a higher purchasing power.

Coupled with infrastructure development, including in the housing segment, and easy financing schemes, real estate has attracted considerable attention from the general public.

Easy bank loans and financing schemes are also reflected in the increasing number of new cars, and to some extent two- wheelers, on the roads. Each auto company offers an array of schemes, backed by major banks, to lure customers.

The paying capacity of the average urban middle-class Indian continues to rise as well, thanks to higher salaries driven mainly by large and multinational corporations.

Economists and government bodies expect this consumer boom to continue, if not rise further.