13 Nov 2009 11:35 AM

Real GDP estimate revised upwards for second consecutive month

We have revised our real GDP growth forecast upward for the second consecutive month. The revision this time is from 6 per cent to 6.2 per cent. In October 2009 we had revised our estimate from 5.8 per cent to 6 per cent.

The economic performance during the first half of 2009-10 turned out to be much better than our expectations. The quick and decisive response by the RBI to tackle the adverse impact of the Global Liquidity Crisis has yielded results. The only discordant note in this growth story was struck by the poor southwest monsoon this year. Had there been no drought, the economic growth would have moved closer to the pre-crisis level.

Liquidity conditions are expected to be better in the second half of 2009-10 than in the first half. This will prevent any hardening of interest rates on deposits as well as advances.

We have scaled up our forecast for industrial production growth in 2009-10 to 7.2 per cent from 5.8 per cent. Both investment demand and consumption have been brisk in the first half of the year. Projects worth Rs 4.6 lakh crore will be completed in 2009-10. This will augment production in various sectors and simultaneously push up the demand as more jobs will be created.

Corporate India reported a robust 28 per cent rise in Profit After Tax (PAT) in the first half of 2009-10, in spite of a 5.9 per cent fall in sales. We expect the PAT growth to decelerate to 13.4 per cent in the second half of 2009-10. Sales, however, will grow by 15.6 per cent during this period and sales growth for the year 2009-10 will average at four per cent, while the PAT growth will be an impressive 20.7 per cent.

Kharif production is slated to fall by 19 per cent in 2009-10. A rainfall deficit of 23 per cent in the 2009 monsoon season and drought in many states led to a 5.3 per cent fall in acreage and will also hit yield. The delayed withdrawal of the southwest monsoon will benefit rabi crops. But this will not be enough to make up for the loss in kharif production. In 2009-10, crop production is projected to fall by 7.4 per cent and farm incomes are projected to decline by 3.7 per cent.

13 November 2009

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Krishna Warrier
kwarrier@cmie.com