The low third-quarter growth makes it almost certain that Reserve Bank of India will cut rates to boost investment after the government announced a Rs 30,000-crore third stimulus package this week, following it up with additional investment schemes like low-income housing and road-building programmes. The top brass at RBI met with bankers in Mumbai on Friday to discuss the implications of a possible rate cut.
In order to achieve an over 7% rate of growth this year, the industrial sector has to significantly improve upon its third-quarter growth of 2.4%. Manufacturing sector output actually contracted by 0.2% in the quarter, year on year.
While steel, cement and automobiles performed much better in January, Indias chief statistician and secretary, ministry of statistics & programme implementation, Pronab Sen, admitted, It is unlikely growth is going to be 7.1%. Among the sub-sectors, only community, social & personal services grew at a healthy 17.3%, that too due to the Sixth Pay Commission payouts.
Minister of state for finance Pawan Kumar Bansal said the third quarter was expected to be the worst this year. Full year, I expect (growth) in the vicinity of 7%. I suppose we should be able to do better in the last quarter. Economic Affairs secretary Ashok Chawla echoed that growth expectation, saying, It will add up to close to 7% for the year as a whole. We are not very disappointed.
Fridays figures pushed the rupee to a record low of 51.10/12 to a dollar, from the previous close of 50.45/47. The 30-share BSE Sensex also ended down 0.71% at 8,891.61 points, while the 50-share NSE Nifty ended 0.79% lower at 2,763.65 points. The yield on benchmark 2018 government paper ended at 6.34%, down from the previous close of 6.51%, after slower economic growth raised hopes of rate cuts by RBI.
Figures released by the Central Statistical Organisation on Friday shows that in October-December, agriculture output contracted 2.2%, from a growth of 6.9%, year on year. The problem is really with agriculture. There is a prospect of agriculture being revised upward for the second half. The Q3 numbers could be revised upward, said HDFC Bank economist Abheek Barua.
While manufacturing and agriculture output contracted, services growth slowed. The economy grew at 7.6% in the same quarter in 2007. GDP growth for the first nine months of this fiscal now stood at 6.9%. According to monetary economist Ajay Shah, growth prospects for the economy were now dependent on external factors as the regulators were not pushing for fiscal deficit or rate cuts to spur growth.
Among the various sectors, construction grew at 6.7% in October-December 2008, from 9% in the same quarter in 2007, according to the CSO data. Trade, hotels, transport & communication grew 6.8% from 11.6%. Financing, insurance, real estate & business services grew 9.5% in October-December 2008 from 11.9% in October-December 2007. However, community, social & personal services grew at 17.3% in October-December 2008, up from 5.5% in October-December 2007.