8.9% growth in Q2, Chidambaram sure of 9% by fiscal-end

Hit by a sluggish manufacturing sector, India’s economy grew 8.9% in the quarter ended September 30, the slowest ever since the last quarter of 2006.

In the first quarter of the current fiscal, the economy grew 9.3% and in the same quarter last year the economic growth was 10.2%.

Consequently, the growth during the first half of 2007-08 came down to 9.1%, from 9.9% in the previous year, according to data released by the government on Friday.

The manufacturing sector, which is the major contributor to the slowdown, gained 8.6% in the last quarter from a year earlier, easing from a previous increase of 11.9%, according to the report.

Barring agriculture and the mining sector, all segments, including services and transport recorded lower growth.

Construction sector recorded an unaltered growth of 11.1% in the second quarter this fiscal. The government is, however, confident of meeting its growth targets. ?Despite a slowdown in manufacturing, the sustained rate of investment gives me the confidence that the year will end pretty close to 9% growth,” finance minister P Chidambaram told reporters here on Friday, adding, ?With luck, it could even be on the right side of 9%.”

“There is turbulence in the international markets, there is slowdown in world output, we have adopted a tight monetary stance. The commodity prices are high, crude oil prices are high. All this points to some moderation… but I am quite confident that economic growth this fiscal will be pretty close to 9%,” he said. He said rupee appreciation had also affected GDP growth to the extent it affected exports. However, rupee has appreciated only against the dollar, and there has been zero rupee appreciation against the euro, he added.

The finance minister said there were upsides also in the growth numbers, released by the Central Statistical Organisation on Friday. Gross fixed capital formation grew by 30.3%, which means that investment continues to be the driver of growth, he said.

Besides private consumption, expenditure grew 57%, which implied that there is sustained improvement in the standard of living of the people, he added. Among other upsides, agriculture growth improved to 3.6% in the second quarter, against 2.9% in the corresponding period last year. In the first quarter as well, it was 3.8% against 2.8% in the year-ago period.

The growth of financial, real estate and business services slowed down to 10.6% in second quarter, against 11.1% a year ago partially due to RBI measures. Meanwhile, the growth in transport, communication, trade and hotel sector slowed down to 11.4% in the second quarter from 14.2% a year ago.

The power sector, whose slow growth has impacted the GDP growth by 1.5 to 2% a year, also failed to show any signs of improvement. It posted a growth of 7.3% in Q2 in 2007-08 as against 8.1% a year ago.

The sector had grown by 6.9% in the first quarter this fiscal. Despite a rise in government spendings on social sector through many UPA flagship programmes, it grew by 7.8% in the first quarter this fiscal as against 8.3% in the same period last year.