7.9 pc GDP growth - is slowdown history now?

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Bikky Khosla | 01 Dec, 2009
The recently announced second quarter's growth figure of 7.9 percent goes to show the resilience of the country's economy which can absorb global shocks and also keep its growth rate going. Notably, the country's GDP recorded 7.9 percent from 6.1 percent in the first quarter, which is a sign that the economy is already in the path of recovery.

The growth rate was indeed higher than what was expected and there are now sparks of optimism that the economy may return to 9 percent growth in the near future.

Having said that, my main concern is the agriculture sector, which continued to languish with a mere 0.9 percent growth. In addition, the strong growth figure is also due to a over 25 percent increase in government spending in the second quarter. So not all is well in paradise. If this spending moderates in the next two quarters, we may not see the same figures altogether.

I also get a feeling that this strong data could pave the way for the Reserve Bank of India (RBI) to hike key rates. With RBI closely monitoring the situation on whether the recovery is sustainable or not, there is an increasing possibility of hiking rates in the future. I however feel that it (RBI) should maintain the key rates at the current levels at least for this fiscal.

Meanwhile good news came from another sector too. The exports sector though declined for the 13th straight month, there were signs of recovery with figures for October 2009 showing a much lower decline than was initially estimated. The year-on-year decline in exports in October 2009 was down to 6.6 percent from 11.4 percent estimated earlier.

I have reasons to believe that growth in the exports sector will turn positive in the third quarter. And with the Commerce Ministry indicating that the sectors that are still not doing well could get additional sops in December can indeed do a world of good to the export sector.