World Economic outlook - indian GDP growth rates revised for 3 yrs from 2008-09 : The government is on a spree of revising macro-economic numbers. This financial year, it had first revised the wholesale price-based index and then the index of industrial production. Today, it changed the gross domestic product (GDP) numbers for three years -2008-09, 2009-10 and 2010-11.
While the new GDP growth for 2008-09 is 6.7 per cent, lower than the earlier figure of 6.8 per cent, economic expansion for 2009-10 was raised from eight per cent to 8.4 per cent and growth in 2010-11 revised from 8.5 per cent to 8.4 per cent. Last year, GDP growth for 2009-10 was revised to eight per cent from 7.7 per cent estimated earlier. As a result, economic growth for that financial year was revised from 7.7 per cent to eight per cent and now to 8.4 per cent.
Even as GDP growth was scaled down for 2010-11, in absolute terms, the size of real gross domestic product was slightly higher at Rs 4,885,954 crore from the earlier estimate of Rs 4,877,842 crore. In a nutshell, a minuscule downward impact could be seen in economic growth this financial year due to these adjustments. However, the larger picture that emerged from these numbers is both savings and investment rates showed a decline, compared to 2007-08, a pre-crisis period. The domestic savings rate declined to 32.3 per cent of GDP in 2010-11 from 33.8 per cent a year ago. In 2007-08, the rate stood at 36.8 per cent of GDP.
Similarly, capital formation fell to 35.1 per cent of GDP in 2010-11 from 36.6 per cent in the previous financial year. In 2007-08, it stood at 38.1 per cent of GDP.
“On savings rate, the news is not so good, little less. The investment rate was also scaled down a little bit. But, above 30 per cent savings and investment rate is marvelous,” said chief economic advisor Kaushik Basu. He said with the recent moderation in wholesale price-based inflation and the expected decline in the months to come, with implications for monetary policy, investment could pick up. After remaining above nine per cent for a year till November, inflation fell to 7.47 per cent in December and is projected to come down to around seven per cent by the end of this financial year. After maintaining a tight monetary stance since March 2010, the Reserve Bank of India had cut the cash reserve ratio by 50 percentage points in the last policy review.
Economists, however, are not as upbeat. “The gap in domestic savings and investment rates were filled by foreign savings then, which gives rise to a current account deficit,” said Fitch Ratings director Devendra Pant. The consumption-led growth cannot be sustained against investment-led growth, he added.
A large part of the decline in the savings rate could be attributed to the Centre's widening fiscal deficit, said economists. The Centre's fiscal deficit had declined to below initial targets. The Budget target for 2010-11 was 5.5 per cent of GDP, which was changed to 5.1 per cent in the revised estimates. However, the figure declined substantially.
For the first half of this financial year, the economy grew 7.3 per cent, against 8.6 per cent in the corresponding period of the previous financial year. The fall was evident, given the drop in the investment rate. Gross fixed capital formation in the first half of this financial year declined to 10.52 per cent. For 2010-11, it stood at 14.18 per cent. In 2007-08, it was as high as 22.17 per cent.
Though the finance ministry is optimistic that the second half would yield slightly better results, economists are not as hopeful.
Basu said, “The Outlook in the mid-year analysis was pegged at 7.5 per cent (for this financial year). We are beginning to see a turnaround. Credit growth and PMI (Purchasing Managers' Index) are showing it. Overall, I expect growth in the next financial year to be higher than that in 2011-12.”
However, the Prime Minister's Economic Advisory Council chairman, C Rangarajan, sees economic growth moderating this financial year quite a bit. “The overall growth rate in industry would be well below the initial expectations. The world economic situation is also not very encouraging.…The growth rate in the current financial year may be between seven per cent and 7.25 per cent.”
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