New Delhi, Sept. 30: Domestic economy leapt 5.7 per cent year-on-year in the first quarter of the current financial year. The surge, fuelled by a robust growth in industries and services sectors, has set the momentum for an estimated 6.5 per cent annual growth.
Growth in the manufacturing sector shot up to 6.4 per cent from 3.8 per cent in the same period a year ago; in services, it shot up to 7.6 per cent from 6.9 per cent in the past year, a statement released by the government said.
Financial, insurance and business services grew 7.1 per cent compared with 6.7 per cent in the first quarter of the previous financial year. However, community, social and personal services grew at a slower rate of 4.3 per cent against 6.9 per cent a year earlier.
Economists said the data reflects that macroeconomic fundamentals are strong, and that the economy can achieve the projection of over 6 per cent growth.
The farm sector, hit by last year’s drought, expanded at a lower rate of 1.7 per cent compared with 2.7 per cent in the first quarter last year. However, the fresh crop of figures do not reflect the impact of this year’s bumper monsoon, the best since 1998. This is expected to power farm output and boost rural demand.
Last year’s drought, the worst in the past 15 years, had pulled down growth rate to 4.3 per cent. Agriculture contributes almost 25 per cent to the gross domestic product (GDP) but gives 70 per cent of the billion-plus population its livelihood.
The government, in the beginning of the current financial year, had forecast an increase of 6 per cent in the GDP, helped by a bumper harvest.
“The overall GDP numbers are in line with our expectations and the economy will pick up pace in the third quarter beginning October since there is a lag between high demand and good monsoon,” Icra managing director P. K. Choudhury told The Telegraph.
But analysts cautioned that despite the upbeat picture, there are still some worrying signs, including the runaway rise in fiscal deficit and a slowdown in reforms.
The country has one of the largest fiscal deficits in the world; the consolidated fiscal deficit of the central and state governments is in the region of 10 per cent of GDP.
“The positive aspect is that domestic interest rates are at three-decade lows, while consumer demand is firm,” said Choudhury, warning a high fiscal deficit stunts economic growth and affects the sovereign rating. In June, credit rating agency Standard and Poor’s affirmed the country’s BB+ foreign currency rating, with a negative outlook, citing rising public debt and growing fiscal inflexibility from general government deficits.