ECONOMISTS PREDICT MANUFACTURING SLOWDOWN

Slower consumer demand, an under-performing manufacturing sector and a slackening external demand may drive sown the gross domestic product (GDP) growth rate in the current fiscal year to around 8.6 per cent, say economists.

While the Prime Minister’s Economic Advisory Council forecast a growth rate of 8.9 per cent for 2007-08, the Reserve Bank of India, in its quarterly review of the monetary policy said the rate would be 8.5 per cent, GDP grew 9 per cent in 2005-06 and 9.4 per cent in 2006-07.

India’s economy grew 9.1 per cent in the first half of the current fiscal, over 9.9 per cent in the same period in 2006-07. During the second half of 2006-07, GDP grew 8.9 per cent, giving rise to expectations that this year’s growth will be higher due to the base effect. Analysts feel the manufacturing sector will act as a spoiler due to a decline in growth in consumer durable and non-durable segments. Most economists say agriculture and services will remain robust in the current year and grow around 3.6 per cent and 10 per cent, respectively.

“The GDP growth in the second half of the current fiscal will be below 8.5 per cent, “said DK Joshi, principal economist, Crisil. “The manufacturing sector will grow around 9 per cent this year, as against 12 per cent this last year, leading to a lower growth rate, “said Siddhartha Roy, economic advisor, Tata Group.

The Index of Industrial Production (IIP) during the last four months of 2006-07 (December-March) stood at 13.3 per cent. “We expect the IIP to remain between 8 per cent and 9 per cent during the remaining months of the current financial year. The slowdown in IIP will be relected in the overall GDP growth “said Shubhada rao, chief economist, Yes Bank.

“If the declining trend in the manufacturing sector continues, case for a rate cut by the Reserve Bank of India becomes stronger,” Rao added. The central bank kept all policy rates unchanged.

Analysts feel that any possible impact of the sub-prime mortage crisis in the United States may not impact India’s economy this year. However, a slowdown in global consumption demand will affect growth through lower exports, they say.

“Our estimate is that exports will grow 16 to 17 per cent this year to touch $148 billion, “Rao said.

However, the International Monetary Fund (IMF), which projected 8.9 percent growth in 2007-08, remained upbeat. “Despite some slowing of exports, emerging market and developing economies have thus far continued to expand strongly, led by China and India. These economies have benefited from the strong momentum of domestic demand, more disciplined macroeconomic policy frameworks, and for commodity exporters, from high food and energy prices as well’” the Fund said in its update of the World Economic Outlook.

 

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