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Annual growth for India's April-June fiscal first quarter was lower than the median forecast in a Reuters poll of 8.1 per cent and below an 8.8 per cent expansion reported in the March quarter.
Analysts said growth remained robust, but higher interest rates and oil and commodity prices were taking their toll and expansion for the fiscal year was likely to be about 7.5 per cent, from rates of 9 per cent or more in the previous three years.
"In the face of good growth and loose fiscal policy, I don't expect any relaxation in the central bank's tight policy stance even though inflation has moderated slightly," said Indranil Pan, chief economist at Kotak Mahindra Bank.
India's markets took the data calmly. The 10-year bond yield eased 1 basis point to 8.66 per cent and the rupee held steady at 43.75/76 per dollar. Stocks were up 3 per cent, helped by some moderation in inflation and gains in Asia.
India, whose economy is less export-oriented that many of its Asian neighbours, is keen to see expansion of 8-10 per cent to reduce poverty and create jobs.
China saw economic growth slowing in the first half but still in double digits, while Singapore and Hong Kong, Asia's most open economies, reported quarterly contractions in April-June.
Inflation in India has raced above 12 per cent to its highest in the 13 years the current series has been available, largely due to surging oil and food prices, although data on Thursday showed the annual rise had moderated slightly in mid August.
The central bank raised interest rates three times in June and July, lifting its key lending rate to a seven-year high of 9.0 per cent.
Economists said a loan waiver to farmers from the government and a steep hike in government employees' salaries this year would provide a boost to output.
"Consumption spending is going to get a boost from an expansionary fiscal policy in the second half of the year. We expect growth for the whole fiscal year to come down to about 7.5 per cent," said Gaurav Kapur, economist at ABN AMRO.
Manufacturing grew 5.6 per cent in the April-June quarter from a year earlier, while agriculture expanded an annual 3.0 per cent.
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All these trends firmly confirm the projections made by the Centre for Development Economics that, “whereas agricultural sectoral GDP stood at nearly Rs.3,000 billion in 2002-03, it will rise to no more than a whisker under Rs.4,000 billion a decade later in 2011-12 at the agricultural growth rate forecast for the Eleventh Plan. Meanwhile, the combined manufacturing and services sectors would have soared from Rs. 9,000 billion to around Rs. 20,000 billion, widening the gap between the relatively stagnant sectors of the economy and the boom sectors from Rs.6,000 billion to Rs.16,000 billion”, are going to be a certainty. This means that the gap is going to be further widened to an intolerable extent and the objective of inclusive growth is not going to be realized during XI Five Year Plan. Now a doubt arises, WHAT FOR ARE THESE PLANS MADE AT HUGE COSTS BY THE PLANNING COMMISSION MANDARINS? Will it not be better to do away with the Planning Commission and have bottom up plans staring from the districts and centre funding these development programmes in the ratio of population in the rural and urban areas?
The Government have taken credit for growth in Agricultural GDP at 4.5% during 2007-08.One swallow does not make a summer.If we take long tem growth trend as revealed by the data provided by the RBI in their Annual Report 2007-08, the position that emerges is different. Average Agri GDP growth rate during the eight year period ending 2007-08 is only 2.9%. During the same period, growth rates of Industry and Services sectors were 7.1% and 9% respectively. This clearly shows that growth in Agri GDP is continuously lagging behind Industrial and service sectors. But the population dependant on Agriculture is not decreasing. Planning commission, in their study revealed that the gap in per capita income ratios between agri and non-agri sectors have widened from to 1:2.8 in the period 1978-79 to 1983-84 to a whopping 1:5.2 in 1998-99 to 2003-04. The fore cast made by the PMEAC for 2008-09 is a growth of only 2%. The 1st quarter estimates released by the CSO on 29th Aug give an estimate of 3% in Q1 over the same period previous year.