India's growth story just got better

GDP grows 9.2% in Q2, fastest half-year rise since 1991.

India’s economic growth rate accelerated to 9.2 per cent in the July-September quarter from 8.4 per cent in the year-ago quarter on the back of a strong performance by the manufacturing and services sectors, raising the likelihood of interest rates being raised in January 2007.

Taken along with 8.9 per cent growth in the first quarter of the current financial year, this comes to 9.1 per cent growth for the first six months of 2006-07. Finance Minister P Chidambaram said this was the highest first-half GDP growth since 1991-92, when economic reforms were initiated.

He added that the 9.2 per cent growth clocked in the second quarter was among the highest growth rates in recent years.

“Higher growth rates were only seen in the fourth quarter of 2005-06, which saw 9.3 per cent growth and in the third quarter of 2003-04, which saw 11.3 per cent rise. This, however, was on a low base of 1.5 per cent,” he said.

After today’s numbers, economists said they might look at revising their growth forecast for the whole year. “Overall, we are revising up our full-year forecast marginally to about 8.2-8.3 per cent from 8.0 per cent,” JP Morgan Economist Rajiv Malik told agency.

“With GDP growth for the first half at 9.1 per cent, it is certain that there will be an upward revision for the full year. If the growth momentum is maintained, I see full-year GDP growing at close to 9 per cent,” added CRISIL Chief Economist Subir Gokarn.

Asked to comment on the expected annual rate of growth, Chidambaram said, “There is no limit to my expectation on GDP growth.”

He also played down concerns of increased pressure on interest rates on account of the high economic growth rate.

“There is ample liquidity in the system. Only yesterday, the Reserve Bank of India absorbed Rs 2,400 crore through reverse repo.” He endorsed the RBI’s view that it was premature to think of the economy “overheating.”

The finance minister said all sectors had done better in the second quarter than in the first one, barring agriculture and mining and quarrying. Commenting on the 1.7 per cent growth in agriculture, he said this was not unusual.

“The second quarter is always a lean quarter, as only a part of the kharif crop has come in, and the rabi crops come in in the third and the fourth quarters,” he felt.

“One of the worrying factors is the slightly high inflation, which is largely driven by supply side constraints. But with better supply side management and sugar and wheat stocks building up, I am confident that inflation can be tamed,” the minister said.