CSO pegs GDP growth rate at 7.1%; Fitch affirms stable rating

Written by Economy Bureau | New Delhi | Updated: Feb 10 2009, 08:48am hrs
The government has pegged the GDP growth for 2008-09 at 7.1%, equal to the Prime Ministers Economic Advisory Councils estimate but slightly higher than the Reserve Bank of Indias target growth of 7% or lower. This growth will be the lowest since 2003-04, when GDP grew at 8.2%, and substantially lower than the over 9% rate clocked in the past three years.

The 2008-09 GDP is estimated at Rs 29,62,249 crore, the Central Statistical Organisation (CSO) said in its quick estimates of the national income in 2008-09 released on Monday. The annual income of an individual is expected to grow by 5.6% to Rs 25,661 in 2008-09, compared to the last year estimate of 7.6% growth.

This is indeed a very positive development, department of economic affairs secretary Ashok Chawla said, commenting on the growth figures. He said India would continue to face the slowdown pressure till the first quarter of 2009-10 after which the growth is likely to improve. There will be some positive corrections in the second half of the next fiscal and the stimulus measures already announced will play out in the future, he said.

Pointing out that the manufacturing sectorwhere growth is estimated to halve to 4.1%--was an area of concern; Chawla said the government was ready to provide support to the economy, going forward. However, he said, At the moment, there is no consideration of stimulus.

We can continue the fiscal stimulus in the next year. It can be done as part of the full budget, Planning Commission deputy chairman Montek Singh Ahluwalia said on Monday, indicating that there would be no more stimulus package till the next government is formed.

CSO has estimated the industrial growth at 4.8% in 2008-09, down from 8.1% in the previous year. Agriculture is expected to grow at 2.6%, down from 4.9%. The services sector growth has been pegged at a buoyant 9.6%, though lower than the previous year estimate of 10.9%.

The financial markets reacted with enthusiasm to the growth projections. The 30-share BSE Sensex ended up 3.04% at 9,583.89 points and the 50-share NSE Nifty closed up 2.7% at 2,919.90 points on Monday. The rupee closed at 48.57/58 per dollar, stronger than Fridays close of 48.67/68. The yields on benchmark 2018-government bond ended at 6.33%, from Fridays close of 6.19%, on concerns on more government borrowings.

Fitch Ratings affirmed Indias stable investment grade ratings on Monday but kept its negative outlook on the rupee, saying public finances will deteriorate due to a weakening economy and government stimulus measures. The agency affirmed Indias foreign currency issuer default ratings at BBB-minus, or the lowest investment-grade level, with a stable outlook. Local currency ratings were also kept at that rating, but with a negative outlook.

The moderation in growth would hit private consumption while government spending would balloon due the stimulus measures. Private consumption would grow at 6.7% in 2008-08, down from 8.1% a year ago. The government consumption growth is expected to jump to 16.8% in 2008-09 from 7.4% in 2007-08. The growth in gross fixed capital formation, a proxy for investment, is estimated to slow to 8.9% in 2008-09 from 12.9% in 2009-10.