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Low growth

The Indian economy grew at 7.1 percent in April-June period of the current fiscal, the lowest figure posted in six quarters. Analysts had predicted GDP growth in the 7.4 percent to 7.6 percent range, making the final figure a cause for much disappointment. Certain economists argue that low growth in the recent quarter could stymie the Centre’s push towards 8 percent growth this year. To achieve this aim, the economy will have to grow at a rigorous pace in the next few quarters. The subdued performance of the mining (-0.4 percent) and construction (1.5 percent) sectors, allied with a slowdown in the agriculture sector from 2.6 percent in the same quarter a year back to just 1.8 percent this year, must worry the Centre.  Despite the NDA government’s push to facilitate greater economic investment, reports indicate that investment demand remains low. But it isn’t all doom and gloom. Manufacturing and electricity generation recorded impressive growth rates of 9.1 percent and 9.4 percent, respectively. The figures released on Wednesday highlighted India’s dependence on private consumption to propel the economy forward. “Consumption demand is the bulwark of the Indian economy, accounting for 55 percent of the GDP,” notes DK Joshi, Chief Economist in rating agency Crisil. Unfortunately, two successive years of drought has stifled rural demand. But consumption demand is expected to grow over the next few months with the fruits of a good monsoon season and the implementation of the Seventh Pay Commission. In its annual report on the Indian economy, the Reserve Bank of India had noted that it expects consumption to remain the bulwark of the Indian economy. “While a durable pick-up in investment activity remains elusive, consumption will continue to provide the main support to aggregate demand and may receive a boost from the revival of rural demand in response to the above-normal and spatially well-distributed south-west monsoon as well as from the seventh pay commission’s award,” the report said. However, the obvious concern with the arrival of a good monsoon and the implementation the Seventh Pay Commission will be a spike in inflation.
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