18 Sep 2009 3:48 PM

2 tough quarters ahead before economy recovers in March 2010 quarter

Real GDP grew by 6.1 per cent in April-June 2009, far beyond expectations. Clearly, the Indian economy, has emerged quickly and relatively unscathed from the Global Liquidity Crisis (GLC), much faster than the global economy.

However, the truant monsoon is expected to impact real GDP growth in the next two quarters.

Between June 2009 and August 2009, precipitation was 25 per cent less than the Long Period Average. Acreage under kharif crops was down by 8 per cent and drought has been declared in 11 states. Yield will also be hit. Kharif foodgrain production is projected to fall by 16.7 per cent, while rabi foodgrain production will rise by 1.3 per cent. Hence, total crop production will fall by 6.2 per cent.

We expect real GDP growth to fall to 5.9 per cent in the July-September 2009 quarter. The October-December 2009 quarter will be the worst in India's recent history, as real GDP falls to 4.6 per cent, the lowest growth in 27 quarters. Consumer price inflation will rise to 10.5 per cent, its highest level in a decade.

The stress will be caused by the failure of the monsoon and the lack of sufficient and timely imports to repair the gap in supplies. While the latter would not be able to arrest the fall in the growth rate, it could have mitigated the risk of high inflation.

We expect the economy to recover in the last quarter with a growth of around 6.4 per cent and a fall in inflation. This will be driven by accelerated improvement in construction activities and industrial output and recovery in foreign trade.

Fiscal 2009-10 is projected to end with a growth of 5.8 per cent.

Krishna Warrier
kwarrier@cmie.com