India to miss 7.1% growth target in 2008-09 on disappointing Q3 figures of GDP

27 Feb 2009, 1800 hrs IST, ET Bureau

India is unlikely to achieve the 7.1% growth estimated by the government statisticians and other forecasters unless the economy experiences a sharp acceleration in economic activity in the January-March 2009. The economy would need to expand by 8.1%, at constant prices, in the fourth quarter of the current fiscal, from a year ago, to realise the growth projected for the whole fiscal year.

That, however, may be tough given the sluggish domestic and global conditions. Yet, the government continues to be sanguine about growth expectations for the full year. The impact of the three instalments of fiscal stimulus and likely rate cuts by the central bank
is expected to kick in during the fourth quarter.

The economy expanded at its slowest pace in nearly six years in September-December 2008 quarter, growing at 5.3% year-on-year, as manufacturing and exports contracted. While the three stimulus packages announced by the government (December 7, January 2 and February 24) is expected to help stimulate domestic demand for some goods, global conditions are not seen to improve until the end of the year. This would mean that exports in the final quarter too would remain depressed.

The surprise element in the third quarter GDP numbers was the sharp contraction in agriculture, down 2.2% from the same quarter a year ago. To some extent, the contraction can be explained as the base effect; farm output grew 6.9% in the same quarter last year. Economists expect this data for agricultural output may be revised upwards when revised estimates are released in July 2009.

The slower than expected growth in the third quarter becomes a matter of concern, as the second half of the fiscal year usually accounts for about 54% of the GDP. For the agriculture sector, the third quarter performance is the most important.

The Central Statistical Organisation (CSO) in its advance estimates for 2008-09, earlier this month, suggested that the Indian economy was set for a 7.1% expansion despite the contraction in industrial production and exports experienced over the past few months. In January, the Prime Minister’s Economic Advisory Council said it expected the economy to grow 7.1%, down from its earlier estimates of 7.8% made in July 2008.

via:E.T