India’s Q1 GDP grows 6.1% grows

India's economy seemed to pick up some pace in the first quarter of the current fiscal year, bolstered by strong growth in the services even as growth in agriculture and industry remained rather anemic. The slew of fiscal and monetary steps taken by the Government and the RBI over the past several months held things together even as corporates and households tightened their purse strings. The big challenge for policymakers will come in the next few months, as a poor monsoon threatens to upset the recovery process later in the year and the specter of inflation looms large on the horizon. Though most economists expect monetary tightening measures to kick in only in 2010, the central bank could spring a surprise if inflation flares up.

The gross domestic product (GDP) Q1 FY10 grew by 6.1% as against average expectations of a growth rate of 6.2%. GDP growth rate in the same period last year was 7.8%. In the fourth quarter of FY09, the Indian economy had grown by 5.8%. The Industry sector grew by 5% as against 6.1% in the same quarter last year while Services rose by 7.8% versus 10.2% in the first quarter last year. Agriculture sector expanded by 2.4% in quarter ended June 2009 as against 3% in the same quarter a year earlier.

The quality of growth continued to improve, with contribution from government expenditure declining for the second consecutive quarter. Growth in community, social and personal services as well as government consumption was lower than in the previous two quarters, indicating relatively higher contribution from the private sector. Still, a drought like situation could mean that FY10 full-year GDP growth will be lower than FY09. Last week, the RBI had warned the poor monsoon was more likely to drive inflation than to curb growth. Last month, the central bank estimated growth during FY10 at 6% with an upward bias. The Finance Minister said last week growth could rebound to 8% next year.