GDP growth in the first quarter of this fiscal was 5.5 per cent, up from 3.9 per cent in April-June last year. The improvement is satisfactory but by no means surprising; quarterly GDP growth rates were low in the first half of 1998-99 (4.7 per cent in Q2), and rose in Q3 (6.5 per cent) and Q4 (8.4 per cent). The question is whether GDP will be higher in every succeeding quarter this year to push the growth rate above last year's 6 per cent. The GDP growth of 1998-99 (up from 5 per cent in the previous year) was driven by a spurt in agricultural production. A repeat is unlikely (this is already a gloomy cliche). Even so, overall agricultural output seems slated to match last year's high aggregate (after allowing for swings and roundabouts in output of specific crops). The good news thus is that farm incomes are slated to be high for the second successive year; spending should show a sustained rise in the agriculturally prosperous states, boosting the demand for industrial goods.The real GDP growthoriginating in the industrial sector should, therefore, show a rise in every quarter this year (reversing the falls in successive quarters last year). In Q1 this year, manufacturing grew 6.2 per cent (up from 5.2 per cent), construction 6.7 per cent (up from 4.2 per cent) and trade, hotels, transport and communications 6.2 per cent (up from 1.1 per cent). These changes are in line with the rise in the index of industrial production in Q1, and with reported increases thereafter in cement, cars and trucks and housing finance. Indeed, towards the end of Q2 have come hikes in prices of petro-chemicals and steel in anticipation of a rise in demand in Q3 (following the end of the monsoon). The government's spending has been high in April-August. This means incomes are up in the rest of the economy. It is early days yet to say if industrial growth will rise from 4.5 per cent last year to over 7 per cent this year. Consumption demand-driven growth is boosting capacity utilisation.
However, while there is someevidence of a pick-up in investment, seen in the rise in capital goods production in Q1, there has been no corresponding increase in import demand which actually continues to flag.
Industry's contribution to GDP growth will be more than that of agriculture this year. That is not saying much.The principal contribution will come from services, accounting for a half of the country's GDP; this sector's growth in Q1 rose 7.8 per cent, up from 6.4 per cent. All this should add up to GDP growth of 6-6.5 per cent this year, supported by (and this is important) high incomes in agriculture, industry and services. Higher GDP growth requires a breakthrough in investment demand.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.