New Delhi, Sept. 30: After the sensex soar, it was the economy’s turn to fly.
Finance minister P. Chidambaram, his government being roasted daily by economic commentators for not taking forward “reforms”, was happy with a gross domestic product growth of 8.1 per cent in the first three months of 2005-06, but not happy enough.
“I am happy with the first quarter growth, but we are still second. We must strive to become the first,” he said. India is the world’s second fastest growing economy after China, which grew at 9.5 per cent.
Chidambaram said he would like to see GDP growth for the whole year at 8-9 per cent.
The fast April-June growth took place despite low agriculture growth of only 2 per cent. The momentum, much faster than the market forecast of 7.3 per cent and higher than the 7 per cent posted in January-March, was fuelled by manufacturing and services.
Compounding the good news for the Congress-led government was another set of figures that showed the inflation rate had not risen much despite a stiff dose of petroleum price increase early this month. Inflation was 3.75 per cent at the end of this week, up marginally from 3.5 per cent a week ago.
“The not-so-good news is that agriculture in the first quarter of the current year has only grown by 2 per cent as against 3.8 per cent last year,” Chidambaram said.
Farming, which is receiving more attention than earlier in the government’s economic strategy, contributes about a fifth to the GDP, but employs disproportionately larger number of people. A year of good crop, therefore, translates into a huge surge in demand for industrial products.
“What this means is we must maintain the growth rate of industry to compensate for possible low growth of agriculture and we must stimulate the growth rate in agriculture,” he said.
Singh recently held meetings with advisers to try and stimulate farm growth by opening up the trade and emphasising on building agriculture infrastructure.
Manufacturing, which accounts for a fourth of the GDP, grew 11.3 per cent, much faster than the 8.6 per cent in the previous quarter. Services, which contribute more than half of the GDP, grew 9.8 per cent compared to 9.3 per cent in the previous quarter.
Critics saw this as the main weakness in this quarter’s growth story.
S.P. Gupta, a former member of the Planning Commission, said: “It’s hardly sustainable growth. It is based on a credit-linked consumer durables sales push and a speculative real estate and stock market boom. The economy is living off cheap bank credit and plastic money.”
There is some truth in his charge. At 12.4 per cent, financing and real estate have outpaced infrastructure growth by some margin.
“This government is concentrating on non-issues like foreign investment in retail and housing rather than on opening up infrastructure sectors and cutting red tape,” Gupta said.
Chidambaram accepted that the government needed to “continue the reforms of the economy, open sectors which are not fully opened and also those which are closed” to build on the momentum.