Indian economy grows at 6.1% in Q1...

India’s economy has seen a slightly better uptick in the first quarter of financial year 2009-10, signalling economic recovery is underway. The Q1 gross domestic product (GDP) growth stood at 6.1% versus growth of 5.8% in the previous quarter and 7.8% in Q1 of last year.

The Indian economy, which grew at 6.7% last year and clocked 9% plus growth in the three years before, may have bottomed but GDP growth may get impacted ahead due to the poor monsoon.

'Along expected lines'

“The Q1 GDP growth has been in line with expectations. We are of the view that the Indian economy has turned out,” Ajay Mahajan, MD – Financial Markets at UBS, said. “However, agriculture is expected to remain a drag for the second half numbers.”

“We have not yet scaled down our full-year GDP estimates due to the monsoon,” Jahangar Aziz, Chief Economist, JPMorgan, said. Aziz added manufacturing was a disappointing internal in the Q1 figures.

“At this point, the economy is clearly starting to confirm to people’s expectations of how the cycle is playing out and that is reassuring news. Globally the same pattern is emerging,” Subir Gokarn, Chief Economist, Standard & Poor's Asia Pacific, said.

Drought not factored in but worst behind: Govt

The Central Statistical Organisation (CSO), the government body that publishes the data, said the effect was drought had not reflected in the Q1 GDP but may reflect in the coming quarters. “The economy can still clock over 6% growth in FY10 despite the drought,” the CSO said. Deputy Chairman of the Planning Commission Montek Singh Ahluwalia, reacting to the numbers, said the worst may be over on the GDP growth front. “We expect GDP growth to improve in the subsequent quarters,” Ahluwalia said.

The Q1 GDP data shows a move to higher trajectory, Finance Secretary Ashok Chawla said, adding that the impact of impact of deficient rains won’t be much.

Q1 GDP internals:

Farm sector growth at 2.4% versus 3% YoY

Manufacturing growth at 3.4% versus 5.5% YoY

Mining sector growth at 7.9% versus 4.6% YoY

Construction sector growth at 7.1% Vs 8.4% YoY

Industry growth at 5% versus 6% YoY

Services sector growth at 7.8% versus 10.2% YoY

Manufacturing growth, which came in at 3.4% versus 5.5% year-on-year, was a disappointment, Aziz of JPMorgan said. “We thought it would be closer to 5%.”

“Manufacturing activity registered a sharp turnaround around the end of the last quarter, so we should see that continuous momentum build into the numbers for this particular quarter and not that much reflected in the previous quarter,” Mahajan of UBS explained.

However, if manufacturing continued to disappoint ahead, Aziz said the economy getting to evem 6% would look difficult. “One has to be very careful going forward as to what manufacturing does. In particular it would be the capital goods section of manufacturing because investment on the demand side will remain the key driver of the economy,” he said. “If that doesn’t pick up in a sustained manner — it did pick up in June and July — it would be difficult to get around 6% for the year as a whole.”

Dr Samiran Chakrabarty, Head of Research, Standard Chartered Bank, said that if the services sector continued to grow at the same impressive pace — it has come in at 7.8% — the economy could easily notch 6% growth in FY10, “even if the monsoon shaves away something like 50-100 bps (0.5–1%) from the GDP growth."