It sounds good, the upward revision of GDP growth figures for 2007-08 by three decimal points to 9%. Even better, agriculture growth has been scaled up by almost two percentage points to 4%-plus. This should offer an optimistic buffer against the other number, that of inflation. WPI-based inflation has crossed 8% and better farm performance indicates better insurance against food price rises. But, and this is the crucial thing, all talk of India growing at 9% must be moderated by the recognition that manufacturing performance has deteriorated sharply. Double-digit growth in industry used to push up GDP growth. But in 2007-08, manufacturing grew at 8.8%, a three percentage-point slippage from the 2006-07. The story of poorer performance becomes clearer when looking at quarterly figures. Growth in manufacturing went from 10.9% in the first quarter to 5.8% in the last. Remember, in the growth-inflation context, manufactured products account for 64% of the WPI product basket and, therefore, slowing manufacturing output has major implications for price behaviour. One positive exception in industry is construction. The last quarter of 2007-08 saw construction post 12.6% growth, the highest in the last seven quarters. Whether this is the start of a trend or not will be interesting to watch, especially since interest costs remain high and banks lending appetite is not growing.
More worrying trends are seen in the services sector. True, the fourth quarter growth rate is the highest in the last six quarters. True, too, most sub-sectors under the services category have grown at healthy rates. But the sub-sector of financing, insurance, real estate and business services has slipped significantly, posting the lowest growth in nine quarters. This is a bellwether sector in as much as slowing activity here is a direct indication of business mood, confidence and the willingness to take large investment bets. So, 2007-08 may have posted 9%, but it has showed where the economy may have started falteringinvestment demand is showing signs of weakening. To recap what we have so often said, but this is a point that always bears repetition, the diagnosis that the economy needed high interest rates produced all kinds of dampening effects except where intended: inflation. Fiscal 2008-09 may be the year when the full cost of this becomes evident.