New Delhi, Aug 30: Indicating slowdown, the economic growth rate for the April-June period slipped to 7.7 per cent, the lowest level in the last one-and-a-half years, prompting the industry to urge RBI to refrain from more rate hikes.
Finance Minister Pranab Mukherjee termed the slippage in growth, primarily due to poor performance by manufacturing and mining, as “disappointing”.
In the April-June quarter of previous fiscal (2010-11), the economy grew by 8.8 per cent, which is the revised figure, downwards from from initial estimates of 9.3 per cent.
“There is no room for complacency. We shall have to work very hard—the government and the industry—and I am confident that our workers and farmers would make their contribution in ensuring growth with inclusion,” he said, adding that one of the important ingredients is creation of more jobs.
The 7.7 per cent growth in April-June is the lowest after the 7.3 rpt 7.3 per cent expansion recorded in the October-December rpt October-December quarter of 2009-10.
Growth in April-June was pulled down, primarily by the manufacturing sector that dipped to 7.2 per cent from 10.6 per cent in the corresponding period of 2010-11.
The mining and quarrying sector grew by just 1.8 per cent during the period under review, as against 7.4 per cent in the corresponding quarter of the previous fiscal.
Industry players said the tight monetary policy stance of the government is slowing down investments in the country and asked RBI to pause its rate hike. The Reserve Bank (RBI) has hiked key rates 11 times since March 2010 by 325 basis points.
“CII would urge the RBI to refrain from hiking interest rates in the forthcoming policy (on September 16), taking note of the weakness in the economy,” CII Director General Chandrajit Banerjee said.
The government estimates the economy to grow by around 8.5 per cent in the current fiscal. The Reserve Bank has projected 8 per cent growth in 2011-12.
The economy had registered a growth of 8.5 per cent in the last financial year.
While industry is complaining that high interest rate regime is hurting output, country's Chief Statistician TCA Anant said it could not be definitely said that high cost of funds was hurting the manufacturing sector.
“Yes, there is a tight liquidity policy and that might have some impact as the cost might have gone up. But, is it principally on account of interest rates or due to demand, it is hard to say,” he said.
Economists said that the RBI is likely to continue with rate hike in view of persistently high inflation. Headline inflation has remained above 9 per cent mark since December and in July it stood at 9.22 per cent.
“Headline inflation is likely to remain the dominant concern of monetary policy and may prompt the RBI to raise the repo rate by 25 bps in the upcoming mid-quarter policy review,” ICRA Economist Aditi Nayar said.
Country's Chief Economic Advisor Kaushik Basu said that the GDP figure is likely to improve only in the second half of the current fiscal, but there will not be any surprise in the second quarter numbers.
Prime Minister's Economic Advisory Council (PMEAC) expressed confidence that the economy would clock 8.2 per cent growth in the current fiscal.
“The 8.2 per cent growth rate could be achieved. The monsoon has been good and agriculture growth will will cross 3 per cent during the year. Industrial growth rate will also pick up in the second half,” PMEAC Chairman C Rangarajan said.
In its analysis of GDP number, industry chamber Ficci said, “If the current trends are any indication, FICCI estimates that the GDP growth in the current fiscal may be in the lower band of 7.5-8 per cent with some significant downside risks,” FICCI said. PTI