New Delhi, Nov. 30: A strong growth in the brick-and-mortar industry along with a technology and services sector push, helped the economy grow over 8 per cent in the first half of this year.
However, India still ranks second among the fastest growing economies in the world. China, which grew at a 9.4 per cent rate, tops the list.
“Strong consumer demand, fuelled by cheap credit, is boosting sales across the country, which is why we are growing ... but, how long can cheap credit fuel growth' Both the Chinese and Indian economies are poised precariously ... we might, like the sensex, zoom to greater heights or suddenly see a ‘technical correction’,” said S.P. Gupta, former Planning Commission member.
Only yesterday, Prime Minister Manmohan Singh had said, “India’s economy is growing at an unprecedented rate and we should be targeting a 10 per cent growth rate in two to three years, which is quite feasible.”
The government has said in the past it was expecting a 7.5 per cent growth this year compared with 6.9 per cent last year. The RBI has forecast a 7-7.5 per cent growth.
However, India’s fiscal deficit or the difference between what the government earns and spends, is expanding at a fast pace.
Huge deficits, despite the economic growth, can actually see inflationary pressures building up. India has already seen the inflation graph creeping up from a low of 3.3 per cent to 5 per cent.
India’s economy grew 8 per cent in the July-September quarter, after posting a record 8.1 per cent in the April-June period. In both cases, the 7-7.5 per cent growth forecast was left far behind due to strong output in services and manufacturing, However, farm growth remained at 2 per cent.
Manufacturing, which accounts for a fourth of the GDP, grew by 9.2 per cent, slower than 11.3 per cent in the last quarter but faster than 8.6 per cent in January-March 2005. Services, which contributes more than half of the GDP, grew 9.9 per cent, a tad faster than 9.8 per cent in April-June this year.
But critics saw this as the main weakness of the growth story, besides infrastructure bottlenecks and rising deficit. “It’s hardly a sustainable growth story ... it is based on credit-linked consumerism and a speculative real estate and stock market boom. The economy is living off cheap bank credit and plastic money,” Gupta said.
There is some truth in his statement. The mining sector has decelerated 1.1 cent from last quarter's growth of 3.3 per cent, while electricity, gas and water supply grew 3.3 per cent compared with an earlier 7.9 per cent. In sharp contrast financing and real estate grew 13.9 per cent.