GDP Report second quarter 2010

• A better-than-expected GDP growth of 8.9 per cent during the second quarter (July-September) of the current fiscal year confirms that the Indian economy is now placed firmly on a higher growth path.
  
• With the Central Statistical Organisation (CSO) simultaneously hiking its estimate for the first quarter also to 8.9 per cent, the overall figure for the first six months is significantly higher than the 7.5 per cent recorded over the same period last year.
  
• Both official and non-official forecasters of growth are set to revise upwards their estimates for the whole year.
  
• The government and the RBI have both projected 8.5 per cent in 2010-11.
  
• Industry and services have grown by 9 per cent and 9.6 per cent respectively, the surprise has been agriculture which grew by 4.4 per cent, thanks to satisfactory monsoons and a good kharif crop. The farm sector had registered less than one per cent growth during the corresponding period last year and had kept down the overall growth over the previous two years. Its revival, therefore, should bring hope to policymakers that the recent acceleration in growth can be sustained.
• However, the showing of the manufacturing sector, a star performer in the industries segment, is cause for some concern. While it has grown by 9.81 per cent between July and September compared with 8.36 per cent over the same period last year, it is sharply lower than the nearly 13 per cent it clocked in the first quarter.
  
• Some see in this sequential fall signs of declining investments, which will be reflected in the data for the third quarter. In this, they are guided by parameters such as a decline in factory output and a much slower increase in credit off-take from the banking system. It is also likely that the steady increase in the short-term interest rates by the RBI is making an impact. However, even though inflation concerns continue to be dominant, further interest rate hikes in the near future have been ruled out. On the demand side, there is some buoyancy. The services sector — especially its sub-segments of trade, hotels, transport and communications — leads the way but there is strength across the board. Even the segment 'community services, social and personal services', which is seen as a proxy for public spending, has held its own, although it is lower than last year, when it benefited from the stimulus package. Further evidence of the economy moving into a higher trajectory is seen in the sharp rebound in the output of six core industries for which data have been released.