Farm growth props up GDP, but services flop

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SummaryWith 84% of deficit hit by Oct, lower govt spend to weigh on growth

output of 129.32 million tonnes bear out the robust farm-sector growth.

In what is seen as a subtle message to the Reserve Bank of India, which has raised its policy repo rate by 50 basis points since September to fight persistently high consumer price inflation, Chidambaram said consumer inflation “is entrenched due to high food and fuel prices, and monetary policy has little impact in curbing these prices”.

“The GDP growth is being driven primarily by agriculture and construction. Manufacturing is a tad better but to have a growth of 5% for the full year, growth in the second half of the fiscal has to be in the band of 5.5-5.8%, and that depends on how the winter-sown crops pan out and with what speed the government further clears stalled projects,” said Rupa Rege Nitsure, chief economist at Bank Of Baroda. “We also need to see after the clearance with how much lag the activity actually starts at the ground level. I don’t expect the RBI to loosen monetary policy in any way, and today’s data is in a way supportive of a tighter monetary stance and gives the RBI some cushion to continue with its anti-inflationary stance.”

While a pick-up in the global economy augurs well for the Indian economy (share of exports to GDP rose to 27.8% in Q2 from 25.4% in the previous quarter), the external risk to the economy from the uncertainty over the phasing out of the US’ easy monetary policy remains.

Meanwhile, policymakers were quick to pronounce a steady recovery. "I have been saying that growth will come back slowly in third and fourth quarter. But I am glad that it is better than the first quarter," economic affairs secretary Arvind Mayaram said after the Central Statistics Organisation released the data on Friday. "There were many people who were predicting that it will be less. So I believe that going forward in third and fourth quarters, you would see a pick-up... (Growth in this) fiscal would be upwards of 5%."

After the release of the June quarter growth data

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