New Delhi: Poor output of manufacturing and mining sectors scaled down the country’s economic growth to 7.8 percent in the fourth quarter of 2010-11. The Government has expressed possibilities of the declining trend to continue in the current fiscal as well in view of inflationary pressure.

"Growth (in the current fiscal) would suffer if inflation continues to remain high... there may be little less (growth) if inflationary pressure continues," Finance Minister Pranab Mukherjee said while commenting on the GDP data.

The GDP for the entire 2010-11 fiscal stood at 8.5 per cent, marginally lower that the earlier estimate of 8.6 per cent. Indian economy had recorded a growth rate of 8 per cent in 2009-10. The growth in the last quarter of 2009-10 was 9.4 per cent.

According to Reserve Bank projections, the growth rate during 2011-12 could moderate to 8 per cent.

Inflationary pressure cautioned

Market observers cautioned about inflationary pressure and the RBI's repeated hike of key policy rates to check price rise saying this may take the GDP numbers lower in 2011-12.

"The advance estimate (of GDP growth for 2010-11) was 8.6 per cent and now the revised estimate is more or less the same which is 8.5 per cent," Mukherjee said, and made specific
mention of agriculture, which grew by 6.6 per cent in 2010-11 compared to a meagre 0.4 per cent rise in the previous fiscal.

Experts comment

Commenting on the figures, Planning Commission Deputy Chairman Montek Singh Ahluwalia said: "We have lowered the growth forecast for 2011-12. The RBI has said something.
Finance Ministry has said that it should be 8.5 per cent. I think somewhere between 8 to 8.5 per cent."

The decline in growth in the last quarter, Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan said, "was mainly due to slower growth in the manufacturing sector".

As regards the current fiscal, Rangarajan hoped the growth would be around 8.5 per cent although agriculture sector may witness some moderation.

Mukherjee, on his part, said the annual growth in manufacturing and mining sectors were on projected lines.

"I do hope it (advance estimate of 8.6 per cent) would be confirmed when the final finding is available," he said.

Inflation fears continue

Mukherjee's concern on the inflation front was seconded by experts.

Global ratings agency Fitch said the fourth quarter figure confirm fears that India's economy has hit a soft patch since late 2010.

"Looking ahead, GDP growth is likely to remain in the mid-7.5 per cent range for the rest of the year as both individuals and corporates cope with the impact of continued inflationary pressures and a higher interest rate environment," Fitch director (Asian Sovereign Ratings Group) Art Woo said.

Headline inflation stood at 8.66 per cent in April. RBI, in its monetary policy for 2011-12, had said that inflationary pressure would continue in near future on account of high global commodity prices. The apex bank has hiked its key policy rates nine times since March 2010 to curb demand and tame inflation.

Experts have been saying that the rate hikes have slowed down investment in key sectors like manufacturing.

According to financial service firm IIFL, the 2011-12 growth would be below 8 per cent.

"Q4 growth of 7.8 per cent is largely in-line with our estimate... We expect growth to decelerate further in FY12 as non-agri growth decelerates due to sustained high inflation and rising interest rates. As a result, we expect FY12 growth to decelerate to 7.7 per cent," IIFL economist Ashutosh Datar said.

Global consultancy firm Deloitte Haskins & Sells said a deceleration in the economy during Q4 of last fiscal is visible. "This is largely due to a contraction in industrial output which has consistently underperformed in the latter half of last fiscal and only improved in March. High input prices and availability of credit may be seen as impediments to growth in this sector," Deloitte Haskins & Sells director Anis Chakravarty said.

Manufacturing, Mining sectors play spoilsport

During the quarter ending March 31 this year, growth in the manufacturing sector slowed down to 5.5 per cent from 15.2 per cent in the same quarter of 2009-10, as per the latest data. The sector grew by 6 per cent in the third quarter of 2010-11.

Manufacturing sector growth slowed down to 8.3 per cent in the 2010-11 financial year from 8.8 per cent in 2009-10.

In addition, the mining and quarrying sector grew by only 1.7 per cent during the period under review as against 8.9 per cent in the fourth quarter of the previous fiscal. In the third quarter of 2010-11, it had grown by 6.9 per cent.

Growth of the mining and quarrying sector also fell to 5.8 per cent in 2010-11 from 6.9 per cent in 2009-10.

Services, Farm output grows

However, services including banking and insurance grew by 9 per cent in the March quarter this year, compared to 6.3 per cent in the corresponding period last year. The growth of the
segment in third quarter of FY11 was 10.8 per cent. The growth of services including banking and insurance improved to 9.9 per cent in 2010-11 from 9.2 per cent in the  previous fiscal.

Farm output showed tremendous improvement, growing at 7.5 per cent during the quarter under review, compared to a meager 1.1 per cent in the same three-month period last year.
Agriculture had expanded by 9.9 per cent in Q3 of 2010-11.

The 8.5 per cent annual growth last fiscal was also backed by robust numbers from agriculture sector. Agriculture and allied sectors grew by 6.6 per cent during the fiscal, as against a meagre 0.4 per cent in the previous year.

Furthermore, the trade, hotels, transport and communications segment grew by 9.3 per cent in the March quarter this year, as against 13.7 per cent expansion in the same the period of 2010. The sector expanded by 8.6 per cent in Q3 of 2010-11.

The trade, hotels, transport and communication segment grew by 10.3 per cent in FY11, as against 9.7 per cent in the previous fiscal.

The electricity, gas and water supply segment grew by 5.7 per cent last fiscal, compared to 6.4 per cent in 2009-10.