Q1 Growth Highest In Two Years As Services Recovery Catches Up (31-Aug-2010)
The Ministry of Statistics and Programme Implementation released the estimates of Gross Domestic Product (GDP) for the first quarter (April-June) of 2010-11 on Tuesday. This was the highest pace of growth that the country has seen in over two years. Further, while the overall growth in national income seemed to be in line with the expectations, the GDP interiors pointed out that consumption demand in the country continues to lag, something that can drag the growth potential of the second fastest growing large economy.
As per the data released by the government, quarterly GDP at factor cost at constant (2004-05) prices for Q1 is estimated at Rs 11, 32,778 crore, as against Rs. 10,40,949 crore in Q1 of 2009-10, thus showing a growth rate of 8.8%. This figure was close to market expectations of around 8.9%.
Industrial growth continued to show a strong momentum expanding at double-digits, but some moderation on quarter-on-quarter basis was clearly visible. Overall industrial activity expanded by little over 10% boosted by the manufacturing activity that grew by 12.4% of the April-Jun period. Mining and quarrying registered a growth of 8.9% over the quarter.
However, major support to the GDP came from the services sector that showed a strong recovery to reach a growth rate of 9.7% compared with 8.4% growth seen in the last quarter. Within the services space, construction activity expanded by 7.5% compared with 4.6% in the same quarter a year ago. Another major services sector sub-header ‘trade, hotels, transport and communication’ recorded an expansion of whopping 12.2% compared with just 5.5% growth seen in the same quarter a year ago.
There was some slowdown in ‘financing, insurance and real estate’ segment which expanded at 8% compared with 11.8% growth seen in Q1 of 2009-10. Finally, the ‘community, social and personal services’ services, which primarily reflect the impact of government’s social expenditure, registered marginal slowdown to 6.7% from 7.6% expansion seen a year ago.
While the headline GDP seems to be doing reasonably well, the internals continue to remain rather un-enthusing. There has been little uptic in the private final consumption expenditure that continues to lag behind perhaps reflecting the impact of higher consumer inflation. Also, investment expenditure has failed to show a great deal of recovery despite the capital goods numbers in the index of industrial growth (IIP) showing strong momentum over the quarter. Overall, the growth remains good in a headline sense, however, both private consumption and investment demand will have to pick up further to sustain this growth.
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