Sluggish manufacturing drags GDP growth to 8.9%

NEW DELHI: A sluggish manufacturing sector pulled down economic growth to 8.9% in the second quarter of 2007-08 as compared to 10.2% during the corresponding period of the previous year, despite a good show by the agriculture and mining sectors. Decline in manufacturing was led by slowdown in consumer durables. During the two previous quarters, growth ruled above 9%. According to the official data made available on Friday, economic growth in the first half of this fiscal slipped to 9.1% as compared to 9.9% during April-September the previous year. Finance minister P Chidambaram said that, as anticipated, overall growth moderated close to 9%. “There is turbulence in the international markets, there is slowdown in world output, and we have adopted a tight monetary stance. Besides, commodity and crude oil prices are high. All these point to some moderation. But I am confident that economic growth in the 2007-08 fiscal will be pretty close to 9%. With a bit of luck, we would be on the right side of 9%,” he said, reacting to the numbers. Manufacturing growth slid to 8.6% during July-September as compared to 12.7% during the second quarter of the previous year. While farm and mining sectors improved, others, including services and transport, recorded lower growth. Agriculture grew by 3.6% compared to 2.9% a year earlier. In the first quarter as well, it was 3.8% as compared to 2.8% in the year-ago period. “Wheat production is expected to be one million tonne higher than the previous year. With 3.6% growth in the second quarter, agriculture growth is expected to remain close to the target of 4%,” Mr Chidambaram said. Construction remained steady at 11.1% in the second quarter while financial, real estate and business services slowed down to 10.6% in the second quarter as against 11.1% a year ago, partially due to the tight monetary policy. The power sector also failed to show any signs of improvement. It grew by 7.3% in the second quarter as against 8.1% a year ago. The sector had grown by 6.9% in the first quarter of this fiscal. Mr Chidambaram said rupee appreciation had also affected GDP growth to the extent it affected exports. Although the finance minister did not say whether exports would meet the target of $160 billion for 2007-08, he said the government was committed to provide all support to export sector “within affordable limits”. Economists too echoed the government’s optimism. HDFC bank chief economist Abheek Barua said that growth has shown some moderation in the wake of a strong currency and tight monetary measures, but it will continue to grow at a decent rate of 8.5%. However, if the cocktail of a strong currency and high interest rate continues, this could have sharper impact on growth.