The economy grew an astounding 9% in the first half of fiscal year (at 9.2% in Q2) due to impressive manufacturing sector performance and despite slowdown in the farm sector, inflation concerns, and ballooning fiscal deficit. This unexpectedly high performance reported by the Central Statistical Organization (CSO) (compared to 8.4% last year) has raised expectations of exceptional growth for the year.
Manufacturing, which contributes 17% of the GDP, grew at an explosive 11.9% (from 8.1% last year) while agricultural sector growth slowed to 1.7% (from 3.4% last year). Tourism and communication services grew at an impressive 13.9% (11% last year), financial sector including insurance and real estate decline marginally at 9.5% (10.5% last year). Power growth jumped dramatically to 7.7% (from 2.5%) and mining to 3.1% (from 2.6%). Second quarter GDP is valued at Rs 838,367 crore (USD 182.25 billion) against Rs 735,461 crore (USD 159.88 billion) reflecting an expansion at 14%.
Finance Minister P. Chidambaram, encouraged by 30% growth in revenue collection, enthusiastically said that the economy is "on target to budget estimates" for revenue and fiscal deficit. Fiscal deficit numbers for the 1st half is valued at Rs 87,100 crore (USD 18.9 billion) compared to Rs 92,068 crore (USD 20 billion) last year. Revenue deficit is valued at Rs 67,299 crore (USD 14.63 billion) compared to Rs 70,284 crore (USD 15.27 billion).
Chidambaram says that the nation is at 79.4% of revenue deficit targets (from 73.6% last year) and at 58.6% of fiscal deficit targets (from 60.9%).Apart from this encouraging sign, the Controller General of Accounts of India (CGA) says that excise duty collection is higher at 7% while the budget target is only 6.4% while customs revenue grew at 31% (from 18.1%) and service tax collection grew at 64% (from 43.5%). Chidambaram was also excited about the growth in direct taxes (including Securities Transaction Tax and Banking Cash Transaction Tax) to 32% against a target of 18.7% and Corporate Tax growth at 47% against a target of 33.77%.
Chidambaram reassured that even plan and non-plan expenditure are on target so he expects "revenue deficit" to be wiped out by 2008-09 and "take fiscal deficit to 3% by 2008-09." Exuding confidence, he says that the financial year 2006-2007 would be "one of the best years" in terms of economic growth, but supply-side driven inflation was the only worrying factor and all the macro economic factors are good. However, he promises that the inflation will be managed. He disagreed with the Reserve Bank of India (RBI) Deputy Governor's observation of concerns of economic "overheating" saying that this was premature but inflationary pressures were "worrisome."
India is currently the fourth biggest economy in Asia and the economic growth has averaged at eight% over the previous three financial years and this is the third time that the nation has seen a growth of over 9%.