The Indian economy is estimated to grow 7.1 per cent in 2008-09, significantly lower than the average growth rate of a heady 9 per cent during the previous four years. This is also the slowest growth rate since the uptick in 2003-04, when the country’s GDP jumped 8.5 per cent.
In the five years ending March 31, 2009 — the tenure of the present UPA government — the economy has averaged a growth rate 8.52 per cent. The figures released by the Central Statistical Organisation are in line with the forecast of the Prime Minister’s economic advisory council (EAC) in its annual review last month. At a growth rate of 7.1 per cent, the gross domestic product, in absolute terms, will be Rs 33,51,653 crore. The growth rate, according to the CSO, will be sustained over 7 per cent, mainly because of a robust more than 5 per cent growth in key sectors such as construction, trade, hotels, transport and communication, financing, real estate and business services. However, growth in these segments is markedly down from the double-digit growth rates of 2007-08.
Significantly, agriculture and allied services, which grew at about 5 per cent last year are set to pull the economy down. The farm sector is expected to grow only 2.6 per cent this year, statistically because of last year’s high base and partly because of bad monsoons earlier this year. Though the government has said it will provide a fiscal stimulus and also announced Rs 20,000 crore extra spending during the year, experts feel it will not have much of an impact. D K Joshi, principal economist at credit rating agency CRISIL, said, “The impact of the fiscal stimulus won’t begin to show till the second half of 2009-10 and even then it won’t be too significant. There will be only a mild revival of growth.” The department hasn’t yet released figures on the economy’s performance in the third quarter (October-December) of the current financial year, but the PM’s EAC had predicted a rather humble growth of 6-6.5 per cent for Q3 on account of the immediate after-effects of the global financial meltdown and credit contraction in the domestic economy.
The government believes that enhanced public expenditure would make up for lower investments by the private sector. The share of private final consumption expenditure or the private sector’s contribution to the GDP is estimated to be about 57 per cent this year, marginally down from last year’s 57.2 per cent. The government’s contribution,on the other hand, is expected to be around 10.6 per cent, up from 9.8 per cent last year. According to the Finance Ministry, gross fixed capital formation, or long-term investment, is also expected to rise to 32.1 per cent of GDP from last year’s 31.6 per cent. However, this rise may not translate into much in absolute terms given that the overall rise in GDP is slowing down to 7 per cent compared with last year’s 9 per cent.