Economy will return to 9 percent growth soon: India Inc

New Delhi, Nov 30 ( India Inc is upbeat about the “higher than expected” growth of gross domestic product (GDP) in the second quarter this fiscal and expects the economy to return to 9 percent growth soon.

“It only shows the resilience of the Indian economy, which can remain insulated from global shocks of the most troubled times and yet achieve such a growth rate,” said Swati Piramal, president of the Associated Chambers of Commerce and Industry (Assocham).

Official data released Monday showed that the country’s GDP expanded 7.9 percent in the second quarter this fiscal, up from 6.1 percent in the first quarter.

The bulk of the recovery was led by a 9.2-percent growth in manufacturing, while mining and construction activities expanded by 9.5 percent and 6.5 percent, respectively. But the agriculture sector continued to be a major drag with a mere 0.9-percent growth.

“Agriculture and its related sectors still remain grey areas and a matter of serious concern, as growth is hardly happening in them,” Piramal said.

According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the latest GDP figures “are a further confirmation of the Indian economy’s recovery”.

“At this rate, we feel we can look to a near 7 percent growth for the whole year,” FICCI president Harshpati Singhania said.

“This spurt in GDP growth is remarkable because it comes despite the poor performance in the agriculture sector.”

However, the FICCI president said the situation in the second half should be watched closely “as agriculture is likely to lag behind and commodity and energy prices are on the rise”.

The Confederation of Indian Industry (CII), another industry lobby, said the strong growth figures indicated that India’s stimulus measures were “effective” in reversing the impact of the slowdown.

“In fact, some of the strength in the GDP data is due to a sharp increase of over 25 percent in government spending during this quarter,” CII secretary general Chandrajeet Banerjee said.

He warned that the growth rate could moderate once the impact of this high spending fades away over the next two quarters.

Contrary to the claims of some experts that the high GDP growth would let the country’s central bank tighten its monetary policy, Banerjee said the Reserve Bank of India (RBI) should maintain the key rates at the current levels.

“It would be important for RBI to maintain policy rates at the current levels in order to prevent the growth momentum from slackening.”

Global rating agency Moody’s also predicted a “quicker” return of the Indian economy to its trend growth rate.

“India may experience a quicker return towards its trend growth rate of around 9 percent than had earlier been anticipated,” Moody’s said.

According to the rating agency, though there are signals of an upturn in the economy, policymakers are unlikely to withdraw the stimulus measures in near future.

Despite the weak agriculture growth figures, “the year-on-year real GDP is likely to accelerate further in the fourth quarter, with consumer and business confidence improving while government spending continues to expand strongly,” it said.