India's GDP to grow at 9.5 pc in FY 09: CMIE

[N.Sukumar]

India's real GDP is expected to grow at an impressive 9.5 percent in
FY 09, the Centre for Monitoring Indian Economy (CMIE) said in its
monthly review in Mumbai.


The Indian economy is heading towards the fourth consecutive year of
an over-9 percent growth and like in the last five years, growth this
year too was expected to be driven by capital investments happening in
India, CMIE said.

As per CMIE CapEx Service, projects worth Rs 3.4 lakh-crore are
scheduled for commissioning in FY 09. This would be the highest-ever
completion of investments in the Indian history, CMIE said.

The current growth phase of the Indian economy is driven by the
capital investment boom in the country. India's GDP started rising by
over eight percent since FY 04.



And, the gross capital formation (GSF) grew in the range of 13-23
percent during this period.



CMIE expects growth in GSF to accelerate to 18.7 percent in FY 09 from
13.4 percent in FY 08.



This robust growth in GSF is expected to more than offset the
moderation in the growth in private final consumption expenditure
(PFCE) and Government final consumption expenditure (GFCE).



CMIE stated that the PFCE is expected to grow by five percent in FY
09, after growing by 7-9 percent in the preceding three years.



While the slower growth in the PFCE would mainly be on account of the
higher base last year, the prevailing high inflation would also affect
the consumption demand to some extent.



However, inflation is not expected to depress the PFCE dramatically as
income levels in India have also gone up significantly in the last one
year.



This is evident from over 20 percent rise in wages and salaries of the
manufacturing sector and the 57.6 percent rise in income tax
collection by the Government during FY 08.



Hence, despite a moderation, CMIE expects the growth in the PFCE to
remain healthy.



Since the sole growth driver in FY 09 is going to be GCF, one may
wonder 'what if all the projects do not get commissioned in FY 09?'



CMIE believe that even if half of the projects (scheduled for
completion) get implemented, it would give a big push to the growth of
the Indian economy.



It is the huge employment and demand for primary and intermediate
goods generated during the implementation of these projects, which is
more important than the actual commissioning of the capacities.



CMIE pointed out that the implementation of these huge investments to
help the construction sector clock a robust 15 percent growth in FY
09.



Also, the implementation of these projects is going to lead to higher
demand for machinery, steel, cement and other construction items.



Thus, the implementation of capital investments will continue to
generate demand for goods and services and their completion would
ensure that there are enough supplies to meet the freshly generated
demand.


N.Sukumar
Research Analyst
www.kences1.blogspot.com