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Better farm growth can help achieve 9 p.c. GDP rise

NEW DELHI: In its latest issue of the ‘State of the Economy’, the Confederation of Indian Industry (CII) said that net sales growth in the corporate sector has come down to 16.2 per cent during the first half of 2007-08 from 29.6 per cent during the corresponding period in 2006-07, mainly because of the significantly lower growth in net sales recorded in manufacturing that has come down to 11.9 per cent in the first half of the current financial year from 28.6 per cent during the corresponding period of the previous year.

However, CII does not see any major deviation from the projected growth of 9.2 per cent in the current fiscal.

The industry body expected better agriculture growth and mixed corporate results for the first half of 2007-08. The analysis of corporate sector performance is based on the first half results of 2,584 firms, comprising 1,595 firms from manufacturing and 989 firms from services.

According to CII analysis, the services sector has not done well in comparison to its performance during the same period last year. The growth of profit after tax (PAT) of the sector has come down to 30.2 per cent for H1 from 42 per cent, mainly due to the lower growth recorded in the manufacturing sector.

During the same period, the PAT growth of the manufacturing sector has come down to 25.3 per cent from 49.1 per cent, while it went up for the services sector from 29.4 per cent to 39.9 per cent.

The agriculture and allied activities sector has done well in the first quarter registering a growth of 3.8 per cent.

The area under pulses, oilseeds and maize has increased and production of rice and oilseeds are expected to go up.

The analysis of the power sector highlights the shortage of power equipment and shows that this shortage may derail the process of achieving the target of power for all by 2012 with per capita availability of 1,000 units.

CII analysis of the external sector revealed that the increasing net surplus under invisibles (services, transfers and income taken together) on the current account of the balance of payments has increased by 36.4 per cent in the first quarter and it has offset 78.2 per cent during April-June 2007 as compared to 73 per cent during the corresponding period of the previous year. As a result, the current account deficit has remained at $4.7 billion in the first quarter of 2007-08, compared to $4.6 billion during the corresponding period last year.

It also says that the slowdown in U.S. demand and rupee appreciation have started impacting international trade.

The growth of exports to the U.S. has declined to 5.83 per cent during April-May 2007 from 17.87 per cent recorded during the corresponding period in 2006.

The lower growth in U.S. GDP brought down its import growth from 6.3 per cent in 2005 to 4 per cent in 2006 and further down to one per cent in the first quarter of 2007, picking up only in the second quarter to 11.9 per cent and further decelerating to 8.1 per cent in the third quarter.

However, given the robustness of the economy and better performance of agriculture vis-À-vis industry and services, CII does not expect a major deviation from its earlier forecast of GDP growth at 9.2 per cent for 2007-08.

However, continuation of tighter monetary policy in the light of higher inflationary expectation due to rising international oil prices and slowing down of the U.S. economy are current downside risks to high GDP growth.

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