labels: rex mathew, economy - general
Q1 2006-07 GDP growth surges to 8.9 per centnews
By Rex Mathew
29 September 2006

Strong growth across all sectors has taken economic growth for the first quarter of 2006-07 to 8.9 per cent, one of the highest ever quarterly growth rates in recent years. The growth rate is well above consensus estimates by economists and analysts and higher than 8.5 per cent reported for the same quarter of previous year.

The best performing sector was trade, hotels, transport and communication, which saw an expansion of 13.2 per cent over the previous year quarter when the sector had reported a growth rate of 11.7 per cent. Telecom services was the best performing component of this sector with a growth rate of 48.9 per cent.

The strong growth was aided by freight and passenger volume growth of 10.7 per cent and 12 per cent by the railways and a 32.2 per cent growth in air passenger traffic.

Among other services, financing, insurance, real estate and business services expanded at 8.9 per cent while community, personal and social services grew at 7.4 per cent as compared to 8.8 per cent and 7.3 per cent respectively for the previous year quarter. Credit growth for the banking sector was 31 per cent during the period while deposits increased by 19.6 per cent.

The momentum in manufacturing remains very strong and the sector has expanded at 11.3 per cent for the first quarter of this year as compared to 10.7 per cent for the same period of previous year. Growth in manufacturing was very strong in all three months of the quarter with the best performance coming in May at 12.64 per cent.

There has been a decline in growth rates for the construction sector, which was the best performer during the same period of last year. Growth rate for this sector declined to 9.5 per cent from 12.4 per cent, possibly on the high base effect. Within the construction sector, output growth of cement declined to 9.9 per cent from 13.3 per cent while steel output growth was at 6.8 per cent as compared to 7.3 per cent during the previous year quarter.

There is a slowdown in the electricity, gas and water supply sector as well, where growth rate declined to 5.4 per cent from 7.4 per cent a year ago. Mining output growth improved to 3.4 per cent from 3.1 per cent.

Agriculture held steady with a growth rate of 3.4 per cent. Production growth of rice, coarse cereals, cotton and sugarcane was very strong during the period while wheat production increased by a very modest 1.2 per cent.

GDP at factor cost at constant prices for the first quarter was at Rs6.56 lakh crore as compared to Rs6.03 lakh crore for the previous year quarter. At current prices, first quarter GDP was at Rs8.35 lakh crore as compared to Rs7.35 lakh crore.

Wholesale price inflation (WPI) for the quarter was at 4.6 per cent while consumer price inflation for industrial workers was at 6.3 per cent.

Strong economic expansion would put the RBI in a difficult situation when it meets by next month-end to decide on interest rates. While the RBI governor has repeatedly stated in public that inflation expectations remain high, which means he would prefer to keep monetary policy less accommodating by raising or at least maintaining interest rates, the finance minister is increasingly talking about reducing interest rates to facilitate sustained growth.

The central bank has maintained that, unless lower oil prices sustain for a longer period, the chances of inflation coming down is limited. Though the RBI may like to go in for another modest rate hike next month, it may finally be pressurised to maintain the status quo.

 search domain-b
Q1 2006-07 GDP growth surges to 8.9 per cent