Column : Seven per cent plus

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: The Economic Survey has indicated that the Indian economy is set to settle into a growth mode of 7% plus. The Budget to be unveiled today will likely confirm that. The general mood of optimism is reflected in the stock market. Rampant price corrections in the property market also appear to be coming to an end. Reports indicate residential property markets slowly settling at base levels with hopes of recovery round the corner.

Equity and property markets certainly reflect expectations, though not always rational ones. Though neo-classical economics will hesitate to accept either as decisive fundamentals, investors rely on movements of both for sensing prospects. Shares and real estate are deemed drivers of dazzle or doom. Are equity and property markets justified in being upbeat? Do fundamentals support the rebound buzz?

GDP growth in 2008-09 was a respectable 6.7%. Much of the growth came from the first two quarters—April-June 2008 and July-September 2008—which grew by 7.8% and 7.7% respectively. The third and fourth quarters—October-December 2008 and January-March 2009—saw growth being chopped off by around 2 percentage points with both periods growing at 5.8%. Assuming September 15, 2008—the date of filing of bankruptcy protection by Lehmann brothers—to mark the onset of the global downturn, the third and fourth quarters were the ‘affected’ periods. With these two growing by 5.8%, till when is growth expected to remain on the same trajectory and by when will it break free?

The first quarter of 2009-10 (April-June 2009) is almost over. The period growth is unlikely to have been less than 5.8%. Stimulus packages announced in third and fourth quarters of 2008-09 are expected to have got the multiplier working. The election ‘effect’ would have been most pronounced in domestic services—the main driver of GDP growth.