GDP and inflation numbers bring cheer

If the first quarter gross domestic product (GDP) numbers released by the Central Statistical Organisation (CSO) are any indication, any fears that the recent pick up in growth is a short-lived phenomenon can be set at rest. GDP in the first quarter of the current fiscal grew by a healthy 9.3% over the comparable period last year.

Though this is a tad lower than the 9.6% recorded during the first quarter of 2006-07, it is marginally higher than the 9.1% growth recorded in the last quarter of the previous fiscal, suggesting a pick up in the sequential rate of growth.

Happily, manufacturing continues to record strong growth at close to 12% while services too continue to power ahead. More encouraging is the pick-up in agriculture, where first quarter growth at 3.8% is well above the 2.8% recorded in the comparable quarter last year and on par with the growth in the last quarter of 2006-07. While it is early days yet, this suggests a turn-around in agriculture, long regarded as a drag on GDP growth and, more worryingly, the cause of widespread rural distress.

If sustained, it could hold the key to a more equitable and hence more enduring higher rate of growth. Especially since the other main threat to such growth — inflation — has now receded. Inflation, as measured by the wholesale price index for the week ended August 18, 2007 is down to 3. 94% compared to 4.10% for the previous week.

So are there no dark clouds on the horizon? Apart from the obvious ones of political instability on the domestic front and the subprime crisis at the global level, at the disaggregated level, there are two things that might call for a caveat to this happy picture. One, the sharp decline (11.3%) in the production of oilseeds and two, the slowdown in the rate of growth of two leading indicators of the construction sector, cement and finished steel.

To the extent that the latter is in line with the Reserve Bank of India’s conscious efforts to cool the real estate market, the slowdown is not unexpected and indeed could well be regarded as desirable. As far as the subprime crisis is concerned, there’s not much we can do but wait and watch. As for domestic political stability, if only the Left will leave well alone. Or is that too much to expect?