The Indian economy is projected to have grown at a slower pace in 2007-08, as data released today showed industrial production growth during the year moderated considerably over the previous year.
The advance estimates for national income for 2007-08 had pegged the growth of gross domestic product at 8.7 per cent. Economists now expect it to be a notch lower.
In addition, if industrial production growth continues to moderate in the current fiscal (2008-09), overall economic growth in the year is also expected to be lower than the Reserve Bank of India's GDP estimate of 8-8.5 per cent.
The Central Statistical Organisation will release fourth quarter as well as full-year revised estimates of GDP growth for 2007-08 on May 30.
"GDP growth in 2007-08 will remain between 8 and 8.5 per cent," said N R Bhanumurthy, associate professor, Institute of Economic Growth, adding that forecasts for 2008-09 would also have to be revised downward. "I think GDP growth in the current fiscal will remain between 7 and 7.5 per cent."
However, Shashank Bhide of economic thinktank NCAER feels industrial growth may revive this fiscal. "I expect domestic demand to improve, which will offset the slowdown in the external sector. Forecasters will wait for the first quarter GDP data for 2008-09 before revising their own estimates," he said.
The dip in industrial production growth is being attributed to lower domestic as well as external demand. "A slowdown in the US economy and high domestic interest rates are the major reasons for the current state of industrial growth," Bhanumurthy added.
The most crucial element of the growth debate will be the impact of the industrial slowdown on the services sector, which accounts for around 55 per cent of GDP. "There is a very strong linkage between industry and services, as industrial growth creates demand for services," Bhanumurthy said.
"A poor performance by the industrial sector will adversely impact the growth rate of the services sector," Bhide added.
Industry was quick to demand that interest rates be lowered in order to revive the consumer goods sector. "The government should give a leg-up to industry by providing the right environment, including an interest rate revision. Performance of the manufacturing sector is expected to be lower even in the first quarter of 2008-09.
Some of the major concerns of industry are increase in the prices of raw material and high interest cost," said Amit Mitra, secretary-general, Federation of Indian Chambers of Commerce and Industry.
The downtrend had been reflected in the CII-ASCON survey released by the Confederation of Indian Industry last week. On Monday, the chamber said there was an urgent need to build infrastructure, create institutions and policy for advanced manufacturing and engineering, remove bottlenecks regarding power costs and labour laws. "Announcement of a national manufacturing policy will help manufacturing consolidate in long term," it added.
Assocham president Venugopal N Dhoot said the manufacturing sector had seen a substantial increase in input costs. "The government should encourage growth of the infrastructure sector as the industrial slowdown would have implications for the economic growth in the current financial year," he said.