Indian economy grows by 7.6% in Q2, FM terms it satisfactory

New Delhi, (PTI) Services and construction sectors helped the Indian economy expand at 7.6 per cent in the second quarter of the current fiscal, prompting government to term the growth as "healthy and satisfactory" even though it was the lowest in any three-month period in the last four years.

The economic growth, as measured by expansion in Gross Domestic Product (GDP), may be seen as slowing down as it clocked a 9.3 per cent a year ago, but it was much better than expected by many analysts, given the global financial meltdown.

"This is a satisfactory and healthy growth rate having regard to global slowdown," Finance Minister P Chidambaram told reporters.

For the second half, the economy registered a 7.8 per cent growth rate, compared with 9.3 per cent a year ago, much in line with official projections for 7-8 per cent for the fiscal.

However, analysts said services, which came to the aid of the economy, are expected to slow down in the coming quarters and the Reserve Bank (RBI) and the government must come out with some stimulating measures to perk up the economy.

"Going forward the services sector is likely to slow down, particularly the hotel construction and transport," Crisil Principal Economist D K Joshi said.

Moody's economy.Com said the government and the RBI should come out with stimulating measures to induce growth.

While construction sector grew by 9.7 per cent in the second quarter from 11.8 per cent a year ago, services sectors displayed similar pattern of high growth, though slightly slower than last year.

However, manufacturing grew by just five per cent in the second quarter from 9.2 per cent a year ago and halved to five per cent in the second half from robust 10.9 per cent.

Chidambaram admitted that manufacturing sector remains a problem area.PTI

Courtesy: ptinews.com

Inflation India's biggest challenge, says FM

Finance Minister P Chidambaram considers inflation the country’s biggest challenge today and regards becoming an open market as the way forward. Expressing concern at "the relentless rise" of crude oil, commodity and food prices, he put partial blame for the rising food prices on the "foolish" diversion of food to fuel. But he did not name the US, where food crops like corn are used for making ethanol.

Speaking to a private news channel on Sunday night, the finance minister said, "Food prices have also been on the rise thanks to foolish diversion of food to fuel".

Chidambaram also did not think that recent acts of terrorist violence would affect the investment climate in India.

"Please remember, terrorist violence has affected bigger cities like London, Madrid, Tokyo, New York," he told the show host Erin Burnett discussing India’s economic challenges.

"If terrorist violence, terrorist action affects any city in India, it concerns all of us but that does not mean that investment has been jeopardised or is in peril," Chidambaram said. "India’s biggest challenge now is inflation."

India is building thousands of kilometres of roads, power plants, refineries and sea ports, he said referring to investment in infrastructure. "But surely the way forward is to become an open market."

Indian Commerce and Industry Minister Kamal Nath, too, viewed infrastructure as "also a big challenge for us to keep pace with our growth."

Infrastructure is just not roads, ports and airports, but also rural roads, which connect villages, drinking water, health and access to medical facilities.

Envisaging large investment in infrastructure over the next five years, he said: "It is happening. We have to have huge investments in energy sector, ports. So that’s all happening, that’s on the anvil."

Asked how long controls on foreign investment would stay, Kamal Nath noted that retail is one of the very few sectors which are not open. "Rest are all absolutely open and we are taking in investments."

Obviously because of liberalisation, foreign direct investment (FDI) had grown from $2.2 billion four years ago to 25 billion this year, he said.

Asked if India could remain self-sufficient in food in view of its growing population, Kamal Nath said: "We have been self-sufficient except in edible oil and lentils, which are imported. And unless we have a monsoon failure, we don’t see a problem even with these growing numbers."

Comparing India and China, the minister said: "We call ourselves the fastest growing free market economy. And there are differences in governance too." And while India’s growth story is domestic market-driven, China’s growth story is export market-driven.

"But China has its own genius, we have our own genius," Kamal Nath said noting the two countries have good relations even as they compete with each other