The Telegraph
Since 1st March, 1999
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Economy hot, market cold
- Strong GDP growth numbers stop stocks from crashing

May 31: The economy is on a roll, but the stock market continues to be rocky.

Gross domestic product (GDP) growth was 9.3 per cent during January to March 2006, the last three months of the financial year, the second fastest in the world after China, which clocked 10.3 per cent.

It was just as well that the news came on a day the stock market had shed in excess of 650 points. As the spectre of another day of crippling losses loomed on a market shaken by a string of setbacks, the economic data arrived from Delhi like a godsend ' or Chidambaram-send.

The Bombay Stock Exchange sensitive index, sensex, recovered to close with a loss of 388 points at 10398.61.

Following up on the impressive January-March numbers, the Centre revised its growth estimate for all of 2005-06 to 8.4 per cent from 8.1 per cent ' placing it almost on a par with the highpoint touched in 2003-04 of 8.5 per cent.

“Growth of GDP at constant prices in excess of 8 per cent has been achieved by the economy in only five years of recorded history, and two out of these five are in the last three years,” said the Economic Survey in February.

On Wednesday, a few days after the second anniversary in office, the Manmohan Singh-led government improved that record to three in six years.

“The country is back on a growth path of 8 per cent, which is a matter of satisfaction,” the finance minister said.

Taking note of declining stocks, he added: “Global markets are down and it is partly reflected in Indian markets also.”

Strong farm growth coupled with a robust technology and services sector pushed the economy along. The surprise package was agriculture, which grew by a huge 5.5 per cent in January-March and by 3.9 per cent for the whole year, against 0.9 per cent through 2004-05.

Construction grew by 12.1 per cent against 12.5 per cent in 2004-05. Services such as trade, hotels, transport and communication expanded by 11.5 per cent against 10.6 per cent, while financial services, insurance, real estate and business services grew by 9.7 per cent against 9.2 per cent.

Manufacturing output, which accounts for nearly 15 per cent of GDP, expanded 8.9 per cent, faster than the previous year’s 8.1 per cent.

Per capita income, at constant prices, grew too ' by 6.9 per cent to Rs 21,005 from Rs 19,649.

Planning Commission deputy chairman Montek Singh Ahluwalia said: “All macro-economic parameters are in good shape. I think GDP growth can be sustained at more than 8 per cent through the 11th plan period of 2007-12.”

Ahluwalia added that the government feels the economy is not overheated and can sustain higher growth.

Some economists cautioned about an oil price-led damper, but Chidambaram dismissed such fears. “If global oil prices rise and if it is reflected in domestic prices, it may impact inflation but not growth,” he said.

Both Chidambaram and Ahluwalia expressed disappointment with the slow growth in mining (0.9 per cent) and electricity (5.3 per cent), stressing the importance of speeding up reforms.

The Confederation of Indian Industry said: “The economy is doing well but there are concerns regarding growth of industry, which is lower than desired.”

The business lobby said manufacturing growth of 8.9 per cent, against an advance estimate of 9.4 per cent, was “disappointing”.

“This concern is exacerbated, when seen in the context of a general slack in industrial growth.”

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