17 May 2010 11:13 AM

PFCE will power GDP growth in 2010-11

Real GDP is estimated to have expanded by 8.4 per cent in the March 2010 quarter. This is the highest growth recorded in any quarter since the quarter ended March 2008. In the first three quarters of fiscal 2009-10, it had grown by 6.7 per cent.

In fiscal 2010-11, we project that real GDP will grow by 9.2 per cent. Private final consumption expenditure (PFCE) will power this growth.

The real GDP at market prices grew at over 8 per cent from 2003-04 to 2007-08, before declining sharply to 5.1 per cent in 2008-09. In all the years of robust growth, the contribution of PFCE was prominent. Between 2005-06 and 2007-08, the real PFCE grew in the range of 8.3-9.6 per cent. In 2008-09, the global liquidity crisis and surging inflation dented this growth to 6.8 per cent. In 2009-10 it dropped to 6.5 per cent.

In 2010-11, we project that PFCE will grow by a robust 8.6 per cent.

The factors that will contribute to the higher consumption demand include:

1. A rise in the wages and salaries in the organised sector,
2. A change in income tax slabs, which has provided additional purchasing power to the salaried class,
3. Continuation of employment generation schemes in rural areas,
4. Good rabi crop production in 2009-10,
5. Robust investment activities, and
6. Impressive growth in the services sector.

The ongoing CapEx boom in the country is likely to create fresh employment and strengthen the growth in consumption demand. Projects valued at Rs 6.5 lakh crore are scheduled to get commissioned in 2010-11, the highest annual capacity addition in the Indian industry. More importantly, projects worth Rs 4 lakh crore are expected to have got commissioned in 2009-10.

Krishna Warrier

Krishna Warrier
kwarrier@cmie.com