Aug. 30: GDP growth in the first quarter (April-June) has slowed to 7.7 per cent from 8.8 per cent a year ago, but the pundits aren’t seeing this stand-alone statistic as clinching evidence of a slowdown.

The growth was actually better than the consensus estimate of 7.6 per cent, and it even reawakened speculation that the RBI just might be tempted to raise the benchmark rate by another 25 basis points on September 16.

Last month, a frisson of fear had rippled through the markets and India Inc after the Reserve Bank of India unexpectedly raised its key benchmark interest rate — the repo — by 50 basis points to 8 per cent on July 26. The RBI governor had spooked investors by saying that the central bank saw inflation as its Enemy No 1 and it didn’t mind “sacrificing” a little bit of growth while collaring the gremlin that had been causing nightmares for policy makers since December 2009.

Inflation was running at 9.22 per cent in July, and the RBI had forecast that it won’t ease up until well into the third quarter (October to December).

Finance minister Pranab Mukherjee was, however, disappointed by the dip in the GDP growth rate, saying that all sections needed to work harder to ensure that the engines of growth kept chugging along smoothly to achieve the year-end growth forecast of 8 per cent.

According to GDP data, the services sector grew at an impressive 10 per cent and that helped the economy stay buoyant. Normal monsoons helped agriculture growth to 3.9 per cent against 2.4 per cent (year on year).

On a year-on-year basis, growth in April-June was pulled down primarily by the manufacturing sector, whose growth dipped to 7.2 per cent from 10.6 per cent in the corresponding period of 2010-11. Mining and quarrying grew 1.8 per cent during the period under review, against 7.4 per cent in the corresponding quarter of the previous fiscal. However, on a sequential basis manufacturing growth was up to 7.2 per cent from 5.5 per cent.

“The industrial sector has been particularly affected by structural problems such as delays in the implementation of large projects,” said Chandrajit Banerjee, director-general of the Confederation of Indian Industry.

“Although CII expects GDP growth to recover in the second half, achieving the 8 per cent target is tough.”

Mukherjee said an encouraging trend was the 7.9 per cent year-on-year increase in overall investments during the first quarter compared with a 0.4 per cent rise in the the year-ago period

Economists are of the opinion that the central bank will continue its rate tightening measures despite today’s GDP numbers and that there can be another 25 basis point hike in the repo rate on September 16 as it will continue to fight inflation. However, there is a growing view that the apex bank may halt thereafter as the growth has slowed.

“The first-quarter GDP growth at 7.7 per cent was above our estimates of 7.5 per cent and consensus estimate of 7.6 per cent with the upside to our estimate coming from higher non-agriculture GDP growth though the construction sector growth was much lower than our estimates,” Ashutosh Datar, economist – IIFL, said.

“Reasonably strong growth in the first quarter reinforces our view that growth though decelerating is not collapsing with full year GDP growth around 7.4 per cent. This will allow the RBI to continue to focus solely on inflation management and consequently we expect another 25-basis-point hike in September,” Datar added.

Rohini Malkani, economist at Citi, added that the first-quarter GDP numbers were on account of aggressive rate tightening by the central bank and structural policy issues, apart from worsening prospects on the global front. Malkani pointed out that on the monetary policy front, odds were tilted towards the RBI hiking rates once more on September 16.

Infrastructure show

The infrastructure sector grew 7.8 per cent in July from a year earlier, faster than an annual growth of 5.2 per cent in June.

During April-July, the output rose 5.8 per cent compared with an annual rise of 6.5 per cent a year ago, government data showed today.

The eight industries — crude oil, petroleum refinery products, natural gas, fertilisers, coal, electricity, cement and finished steel — have a weight of 37.9 per cent in the overall index of industrial production.

Electricity, steel and cement output grew 13 per cent, 15.5 per cent and 10.6 per cent in July, respectively. Crude oil production grew 1.4 per cent in the month under review against 15.8 per cent in the same period of last year.