Gross Domestic Product (GDP) : INDIA

 

FOR third successive year, the Indian economy has registered a highly impressive  growth during fiscal 2005-06. Sustained manufacturing activity and impressive performance of the services sector with reasonable support from the recovery in agricultural activity have added greater momentum to this growth process. After recording some slowdown in the third quarter (October-December) of 2005-06, real gross domestic product (GDP) registered a sharp increase in the fourth quarter (January-March) of 2005-06 benefiting from a pick-up in almost all segments of agriculture, industry and services. According to the revised estimates released by the Central Statistical Organization (CSO) in May 2006, real GDP accelerated from 7.5 per cent in 2004-05 to 8.4 per cent during 2005-06. The Indian economy has, thus, recorded an average growth of over 8 per cent in the latest three years (2003-04 to 2005-06). 

Growth Rates of Real GDP
(Base Year : 1999-2000)

(Per cent)
Sector
2000-01 to
2002-03 (Average
2003-04
2004-05
2005-06
2004-05
2005-06
Q1
Q2
Q3
Q4
Q1
Q2
 Q3
Q4
Agriculture
-0.2
10.0
0.7
3.9
3.5
-0.2
-1.2
1.5
3.4
4.0
2.9
5.5
Allied Activities
(23.5)
(22.2)
(20.8)
(19.9)
-
-
-
-
-
-
-
-
1.1 Agriculture
-0.5
10.7
0.7
-
-
-
-
-
-
-
-
-
Industry
5.2
6.6
7.4
7.6
6.6
8.0
8.1
6.8
9.5
6.3
7.0
7.9
 
(19.7)
(19.5)
(19.5)
(19.3)
-
-
-
-
-
-
-
-
2.1 Mining and Quarrying
4.4
5.3
5.8
0.9
8.2
6.0
5.7
3.7
3.1
-2.6
0.0
3.0
2.2 Manufacturing
5.7
7.1
8.1
9.0
6.6
8.3
9.2
8.1
10.7
8.1
8.3
8.9
2.3 Electricity, Gas and Water Supply
2.8
4.8
4.3
5.3
4.9
7.9
3.1
1.4
7.4
2.6
5.0
6.1
Services
6.6
8.5
10.2
10.3
10.0
8.2
10.6
11.6
10.1
10.3
9.7
11.0
 
(56.8)
(58.3)
(59.7)
(60.7)
-
-
-
-
-
-
-
-
3.1 Trade, Hotels, Restaurants, Transport, Storage and Communication
8.5
12.0
9.7
11.0
10.2
12.9
10.6
11.5
10.6
11.2
11.7
11.0
3.2 Financing, Insurance, Real Estate and Business Services
6.5
4.5
9.2
9.7
8.8
7.5
9.7
10.7
8.8
10.5
8.9
10.5
3.3 Community, Social and Personal Services
4.1
5.4
9.2
7.8
10.7
4.8
8.5
12.7
7.3
8.0
8.4
7.6
3.4 Construction
5.9
10.9
12.5
12.1
8.9
6.8
20.8
13.5
12.4
12.3
11.5
12.0
Real GDP at Factor Cost
4.6
8.5
7.5
8.4
7.9
6.7
7.0
8.6
8.5
8.4
7.5
9.3

Agriculture
The kharif crops coverage up to July 10, 2006 increased by around 11.9 per cent over a year ago. For all crops taken together, around 27 per cent of the normal area has been sown so far. Total foodgrains production during 2005-06 was placed at around 208 million tonne, an increase of 5 per cent over the previous year, mainly on the back of higher output of rice. The increase in the production of non-foodgrains crops was led mainly by sugarcane and cotton. 

Progress of Area under Khariff Crops - 2006-07
(Million Hectares)

Crop
 
Normal
 
Area Coverage (As on July 10)
2005
2006
Variation 2006 over 2005
Rice
39.9
5.4
6.1
0.7
Coarse Cereals
22.9
6.8
7.3
0.5
Of which
Bajra
9.3
2.4
2.1
-0.3
Jowar
4.6
1.1
1.2
0.1
Maize
6.0
2.7
3.5
0.8
Total Pulses
10.6
2.0
2.7
0.7
Total Kharif Oilseeds
15.1
3.3
3.4
0.1
Of which
Groundnut
5.5
1.2
1.6
0.4
Soyabean
6.3
1.3
1.1
-0.2
Sesamum
1.6
0.3
0.3
0.0
Sunflower
0.5
0.2
0.4
0.2
Sugarcane
4.3
4.3
4.5
0.2
Cotton
8.3
2.5
3.3
0.8
All Crops
101.1
24.3
27.2
2.9

Source: Ministry of Agriculture, Government of India

Agricultural Production
(Million Tonne)

Crop
2003-04
2004-05
2005-06$
Target
Achievement
Target
Achievement
Target
Achievement
Rice
87.0
88.5
93.5
83.1
87.8
91.0
Wheat
72.1
72.2
79.5
68.6
75.5
69.5
Coarse Cereals
37.8
37.6
36.8
33.5
36.5
34.7
Pulses
15.2
14.9
15.3
13.1
15.2
13.1
Total Foodgrains
212.1
213.2
225.1
198.4
215.0
208.3
Kharif
112.0
117.0
113.8
103.3
109.9
109.7
Rabi
100.0
96.2
111.3
95.1
105.1
98.6
Total Oilseeds
25.1
25.2
26.2
24.4
26.6
27.7
Kharif
17.0
16.7
16.3
14.2
16.2
16.8
Rabi
8.1
8.5
9.9
10.2
10.4
10.9
Sugarcane
236.2
233.9
270.0
237.1
237.5
278.4
Cotton #
13.8
13.7
15.0
16.4
16.5
19.6
Jute and Mesta ##
11.2
11.2
11.8
10.3
11.3
10.7

 

$ : Fourth Advance Estimates (July 15,2006)
# : Million bales of 170 kgs each; ## : Million bales of 180 kgs each

Source: Ministry of Agriculture, Government of India

Industry
Industrial production continued to grow at 9.8 per cent during Q1 in 2006-07 The manufacturing sector with double digit growth (10.9 per cent) continued to be the key driver of industrial activity, contributing almost 92.5 per cent of the growth in industry. Electricity and mining sectors, however, continued to exhibit subdued growth. 

The robust performance of the manufacturing sector was largely led by ‘chemical and chemical products’, ‘machinery and equipments’, ‘basic metal and alloy industries’, ‘transport equipment and parts’, and ‘non-metallic mineral products’. The manufacturing sector growth at 10.9 per cent during Q1 of 2006-07 was the highest for this period in the last ten years. 

According to the use-based classification, the capital goods sector registered an impressive growth of 21.1 per cent during Q! of fiscal 2006-07 even on a high base, reflecting strong investment demand. This is the highest growth for April-May period under the new base (1993-94=100). Higher production of laboratory and scientific instruments, broad gauge passenger carriage, boilers, complete tractors, industrial machinery and textile machinery boosted capital goods production. Basic goods sector was buoyed up by growth in cement sector, carbon steel and other minerals. Intermediate goods sector, after recording subdued growth during most of 2005-06, witnessed moderate improvement, facilitated by higher production of viscose staple fibre, filament yarn, cotton yarn, paints, enamels and varnishes, and PVC pipes and tubes. Consumer goods, both durable and non-durable segments, on the other hand, recorded some deceleration, partly on account of base effect. 

Infrastructure
The infrastructure sector recorded growth of 5.9 per cent in Q1 of 2006-07 against  7.1 per cent in comparable period in fiscal 2005-06 on account of deceleration in all industries except petroleum refinery products Double-digit growth in the petroleum refinery products and moderation in growth of the cement and steel sectors could be attributed largely to base effect. The decline in crude oil production resulted from fall in production in plants of ONGC at Mumbai High. 


Growth Rate of Manufacturing Groups

(Per Cent)

 
Index of
Industry Group Weight in the Industrial Production
Growth Rate
Weighted Contribution
April-May
April-May
2005
2006 (P)
2005
2006
Chemicals and chemical products except products of petroleum & coal
14.0
13.3
12.5
25.7
23.4
Machinery and equipment other than transport equipment
9.6
11.3
13.4
16.6
18.7
Basic metal and alloy industries
7.5
16.2
21.0
13.1
16.9
Transport equipment and parts
4.0
13.6
21.4
8.4
12.8
Other manufacturing industries
2.6
9.4
31.6
3.0
9.3
Non-metallic mineral products
4.4
7.7
12.2
5.1
7.4
Beverages, tobacco and related products
2.4
10.4
11.4
5.4
5.6
Rubber, plastic, petroleum and coal products
5.7
2.5
8.0
1.7
4.8
Paper and paper products and printing, publishing and allied activities
2.7
12.5
12.1
3.9
3.7
Wool, silk and man-made fibre textiles
2.3
-8.4
11.9
-3.0
3.3
Textile products (including wearing apparel)
2.5
25.3
9.6
7.8
3.2
Cotton textiles
5.5
9.2
2.9
3.9
1.2
Jute and other vegetable fibre textiles (except cotton)
0.6
-3.6
-2.8
-0.1
-0.1
Metal products and parts (except machinery and equipment)
2.8
6.7
-4.1
1.7
-0.9
Leather and leather & fur products
1.1
11.4
-12.1
1.2
-1.2
Wood and wood products, furniture & fixtures
2.7
-1.3
-21.3
-0.2
-2.4
Food products
9.1
7.4
-7.6
5.8
-5.5
Manufacturing – Total
79.4
10.3
10.9
100.0
100.0

Source : Central Statistical Organization.

Services 
Services sector with double-digit growth during the past two fiscal (2004-05 & 2005-06) has further strengthened its place as the leading sector of the Indian economy. Services sector now accounts for more than 60 per cent of overall GDP. Lead indicators of services sector performance for April-May 2006 suggest continued buoyancy. Revenue earning freight of the railways continued to record strong growth. Substantial activity was witnessed in cargo handled by civil aviation and passengers handled at domestic and international airports. There was a sharp rise in new cell phone connections. Healthy growth in bank deposits and non-food credit, and, increased business process outsourcing-information technology enabled services exports are expected to buoy up the sub-sector ‘financing, insurance, real estate and business services’. 

Indicators of Service Sector Activity
(Growth rates in per cent)

Sub-sector
2004-05
2005-06
April
2005
2006
Tourist arrivals
23.7
11.7
19.7 $
20.0 $
Commercial vehicles production
28.6
10.6
-5.3
49.7
Railway revenue earning freight traffic
8.1
10.7
14.9
11.0
New cell phone connections
10.4
89.4
7.6
167.0
Cargo handled at major ports
11.3
10.3
15.8
-2.0
Civil aviation
a) Export cargo handled
12.4
7.3
12.0
10.1
b) Import cargo handled
24.2
15.8
14.6
19.9
c) Passengers handled at international terminals
14.0
12.8
9.9
16.2
d) Passengers handled at domestic terminals
23.6
27.1
19.2
54.0
Roads: Upgradation of Highways
16.1
-23.4
–
–
Cement
8.2
10.7
12.6 $
8.9 $
Steel
7.6
6.0
13.9 $
7.5 $
Aggregate deposits
11.9
22.3
14.9 @
20.7 @
Non-food credit
31.6
38.4
31.0 @
32.9 @
Central Government expenditure
5.6
2.2
-1.0 $
53.9 $

$ : April-May.
@ : Year-on-year as on July 7.

Business Expectations Surveys
Various business confidence surveys suggest that economic activity is likely to remain buoyant in the near term. The National Council of Applied Economic Research (NCAER) business confidence index (BCI) increased by 1.7 per cent during April-September 2006 to 154 - the highest level since November 1994. According to the NCAER survey, overall economic conditions and investment climate increased by 2.5 percentage points and 2.2 percentage points, respectively. The CII’s business confidence index for April-September 2006 increased by 2.1 per cent. The BCI was significantly higher for non-manufacturing firms compared to the manufacturing firms. The survey revealed that 88 per cent of the respondents planned to increase investments while 75 per cent of the respondents expected capacity utilization will be up to 100 per cent. The FICCI’s quarterly Business Confidence Survey conducted during January-March 2006 indicated that the industrial sector was optimistic about sales, selling price, profits, investments, employment and exports.  

Although the BCI registered a marginal fall from the preceding round partly reflecting the base effect - the BCI had reached an all time high in the previous round - almost 80 per cent of the respondents expected overall economic conditions to be ‘moderately to substantially better’ in the first half of fiscal 2006-7. The corporates appear to be comfortably placed in terms of availability and cost of credit. For 89 per cent of the companies, availability of credit was not a constraining factor, while 78 per cent found cost of credit within their affordable limits. The services sector continued to be the most upbeat among the three industry sectors covered in the survey. At the same time, the survey showed that companies are finding rising cost of raw materials as the key challenge to maintain and improve their growth performance. 

According to the Reserve Bank’s latest Industrial Outlook Survey, the Business Expectations Index for Q2 of 2006-07 increased by 5.0 per cent over the previous quarter’s level. The assessment about the overall business situation for April-June 2006 showed an improvement in the level of confidence over the previous quarter. Responses to the survey suggest an improvement in expectations for the overall business situation, production, capacity utilization, order books, employment, exports, imports, selling prices and profit margins during the Q2 quarter July-September 2006-07 vis-à-vis Q1. The financial situation is expected to show an improvement during JQ2 of financial year 2006-07. While working capital finance requirement is expected to increase, the availability of finance is also expected to improve .  

Business Expectations Surveys

Agency
Business Expectations
Growth over
a year ago
Growth over
previous round

Period

Index
(per cent)
(per cent)
Dun & Bradstreet
2006 (April-June)
Business Optimism Index
7.5
5.8
NCAER 2006 (April-September) Business Confidence Index
7.6
1.7
FICCI
2006 (April-September) Business Confidence Index
5.4
-1.4
CII 2006 (April-September) Business Confidence Index
..
2.1
RBI
2006 (July-September) Business Expectation Index
5.8
5.0

Net Response on ‘A Quarter Ahead’ Expectations
About the Industrial Performance

(Per cent)
Parameter
Response
July-Sept 2005 (816)
Oct-Dec 2005
(961)
Jan-March 2006
(934)
Apr-June 2006
(1086)
June-Sept 2006
(1073)
Overall business situation
Better
45.5
51.3
49.8
46.3
53.1
Financial situation
Better
36.7
42.3
40.7
40.4
43.4
Working capital finance requirement Increase
28.8
32.7
31.9
30.6
32.7
Availability of finance Improve
30.7
34.1
34.1
33.8
35.0
Production Increase
40.7
46.9
46.3
42.5
49.4
Order books Increase
39.6
43.7
41.0
39.1
45.2
Cost of raw material
Decrease
-43.6
-30.0
-35.9
-37.3
-45.8
Inventory of raw material Below average
-4.2
-6.9
-6.8
-5.0
-6.3
Inventory of finished goods
Below average
-4.2
-3.3
-4.7
-4.5
-2.6
Capacity utilization Increase
25.4
31.1
29.6
24.8
32.1
Level of capacity utilization Above normal
7.6
10.9
11.4
9.4
11.8
Assessment of production capacity
More than adequate
5.3
5.0
4.9
4.1
3.6
Employment in company Increase
7.8
12.7
13.3
14.5
16.4
Exports, if applicable Increase
32.5
33.3
31.8
31.0
38.3
Imports, if any Increase
23.7
19.2
20.8
22.7
23.8
  Selling prices are expected to Increase
13.3
7.8
10.8
12.4
16.6
  If increase expected in selling prices Increase at lower rate
14.0
16.6
16.3
12.0
10.5
  Profit margin Increase
7.1
9.6
12.6
9.3
11.1
Note : 1
 Figures in parentheses represent number of companies included in the results.
2
‘Net response’ is measured as the per cent share differential between the companies reporting ‘optimistic’ (positive) and ‘pessimistic’ (negative) responses; responses indicating status quo (no change)are not reckoned.Higher ‘net response’ indicates higher level of confidence and vice versa.

Projections of Real Gross Domestic Product for
India By Various Agencies: 2006-07

Agency
Growth Projections for 2006-07 (per cent)
Month of Projections
Overall Growth
Agriculture
Industry
Services
ADB
7.6
–
–
–
April, 2006
CDE-DSE
7.7
2.4
9.5
9.2
May, 2006
CII
Around 8.0
–
–
–
June, 2006
CMIE
7.9
2.5
8.5
9.6
June, 2006
ESCAP
7.9
–
–
–
March, 2006
ICRA
7.4-8.2
2.0
8.2-9.7
9.1-9.7
January, 2006
IMF
7.3
–
–
–
April, 2006
Planning Commission*
7.7
3.2
8.9
8.8
December, 2005
Reserve Bank of India
7.5-8.0
–
–
–
April, 2006
– : Not Available.
* : Base year 2001-02, Mid-Year Review of the Tenth Five-Year Plan
ADB : Asian Development Bank;
CDE-DSE : Centre for Development Economics - Delhi School of Economics;
CII : Confederation of Indian Industry;
CMIE : Centre for Monitoring Indian Economy;
ESCAP : Economic and Social Commission for Asia and the Pacific;
ICRA : Investment Information and Credit Rating Agency of India;
IMF : International Monetary Fund.

Country's central banking authorities feel that the buoyancy in manufacturing and services sector activities and the positive business confidence and expectations suggest that the recent growth momentum in the Indian economy is likely to be maintained in 2006-07, as has also been projected by different agencies.

SOURCE: Reserve Bank of India Report Macroeconomic and Monetary Developments: First Quarter Review 2006-07

Updated on November 23, 2006