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.

What lies in store now? If the economy grows by around 6% in the first quarter of 2009-10 (at least as much as the previous quarter), it will require the remaining quarters to pull out bigger punches to ensure that annual growth is at least as much as that in 2008-09. Therefore average growth in the remaining three quarters must be at least 6.9% for achieving annual growth of 6.7%. Of course, if the first quarter growth for 2009-10 turns out to be a stunner, then the demand from the rest will be less. Otherwise, pretty soon quarterly GDP must start growing by at least 6.5% and should keep growing at such rate.

Is that possible?

The global downturn has cramped room for manufacturing exports. They are unlikely to recover soon. Exports declined in April 2009 in both rupee and dollar terms compared to the previous month. Manufacturing cannot rely on exports to turn around. On a month over previous month basis again and at a disaggregated level, manufacturing output shows an almost across-the-board decline in April 2009. This is a continuation of the fourth quarter result of 2008-09 showing a negative growth in manufacturing output. Manufacturing requires serious remedy and the stimulus must come from internal, not external, sources.

Growth in the ?affected? quarters of 2008-09 would not have been close to 6%, had services not rallied spiritedly. The third quarter saw community, social and personal services growing by 22.5% primarily due to upward revisions in civil and military service emoluments. It grew by an impressive 12.5% in January-March 2009 as well. But the surprise performer was finance, real estate, insurance and business services. The group grew by 8.3% and 9.5% in third and fourth quarters of 2008-09 respectively. This is the sector that has influenced the market mood positively.

The coming quarters will require these services, along with the trade and transport category, to keep growing at their current robust rates. Assuming they do and manufacturing growth turns positive soon, the story shifts to agriculture. An agricultural setback will mean further setback for growth. The possibility of the first leading to the second depends critically on monsoons, which seem to be doing okay.

?The author is a visiting research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views