I think almost everyone was surprised and wowed by the 7.9% GDP growth — the Indian economy registered in the second quarter. It was an unexpected bit of good news that came out after a longish weekend of uncertainty caused by the Dubai episode.
There is no doubt that stimulus measures played a part in these numbers, but even then, it is quite heartening to see the economy doing well, and especially see manufacturing contribute as much as it did.
The sectors that did well:
- Mining and quarrying at 9.5%
- Manufacturing at 9.2%
- Electricity, gas and water supply at 7.4%
- Construction at 6.5%
- Hotels, transport and telecom at 8.5%
- Financing, insurance, real estate and business services at 7.7%
- Community, social and personal services at 12.7%
The third quarter GDP numbers will probably not be as good as these because agriculture is expected to be negative, but the economy seems to be back on track. As the finance minister said, India might even hit 7% growth in the full year.
These numbers point that the stimulus measures can be slowly withdrawn and will probably speed up the process of hiking interest rates and sapping liquidity from the markets.
Inflation has been rearing up its ugly head, and RBI has been making noises about rate hikes for some time now. Now is a probably a good time to start with CRR rate hikes and then gradually move on to interest rates. Everyone seems to be in cautious observation mode, something that has served well in the past. I hope the numbers are not too bad in the third quarter, and we continue to get surprised by good news.