The economy in India has recorded a 7.4% growth the year in 2009-10 against the GDP growth of 7.2 per cent predicted by the CSO, Central Statistical Organization. The main reason for this growth can be attributed to performance in the farming sectors exceeding expectation and the springing back of manufacturing industry into action owing to stimulus aids.

The CSO released the national incomes annual estimate and the GDP’s quarterly estimate on Monday. This release has shown that the increase in the GDP in the last quarter of the year is mainly due to the increase in the output of manufacturing sector to 16.3 per cent.

This increased GDP proves that the stimulus packages have reaped benefits by the service tax cuts and the excise duty cuts.  Mr. Pranab Mukhurjee, the finance minister has confidently said “… on the whole, it is 7.2 per cent plus [in 2009-10]. I have already stated 8.5 per cent, [now it could be] about 8.5 per cent plus [in the current fiscal].”

Finance secretary, Mr. Ashok Chawla has mentioned that this was not surprising and the growth in numbers was expected. He also mentioned “The growth numbers are pleasant but not really surprising, because we were expecting them to be robust which they turned out to be. This clearly indicates the momentum which is in the economy and the expectations that the 8.5-percentage points estimation for 2010-11 is going to be a clear possibility.”

The government has to now observe if this recovery is permanent and if it would continue after limited roll back of stimulus measures. The CSO, in its data has shown that for the budget 2010-11, the growth would witness a deceleration to 5.6 per cent as opposed to a prior estimate of 8.2 per cent. He also added “…since the stimulus has been partially rolled back, it also indicates the decline in community and personal and social services and the like,”

The private final consumption spending has decreased from 57.7 per cent in the previous financial year to 57.3 per cent in 2009-10.  This is an indicator that the economy of India is largely reliant on stimulus aids. At the same time the final consumption spending of the government has increased to 12.3 per cent from the earlier 11.7 per cent.  Several other sectors have shown missed trends. The gross fixed capital formation fell from 33 per cent to 32.4 percent, whereas the faming and allied sectors have shown a growth of 0.2 per cent. Sectors like quarry, manufacturing and mining have shown double digit growth, 10.6 per cent on 2009-10. Other sectors that have performed well are the services sector, transport and communication sectors.

The per capita income in 2009-10 was at Rs 44, 345 according to the CSO data. This data matched the earlier predictions of CSO to a large extent.  The value of the Indian economy fro 2009-10 has been made at Rs62.31 lakh crore.

For a long time, the agriculture sector has been the primary contributor to the GDP. However, recently, the numbers from the last financial year have been released and the percentage contributions of various sectors have come as a surprise. This last year, agriculture was not the largest contributor to the GDP. It has been now replaced by the industrial sector.

While there are some who may rejoice over this news, feeling that the Indian industrial sector has finally come of age, this is a worrying trend. A decrease in agricultural contribution to GDP is an indication of less production in the sector. For the past few years, due to the slow change in climate, farmers have been having a tough time with their crops. On top of it, there has been unprecedented growth in the real estate sector and may farm lands have been wiped out.

As the population of India grows and there are even more mouths to feed, a dip in the agricultural produce may not be the most encouraging sign. In the past couple of years, India already has had to deal with a dire shortage of food and therefore increased prices of various commodities. If the trend continues in the coming months too, there may be more effect on the prices and there may be more imports of food.

Due to the upward movement of government bonds and resultant pressure on interest rates, ‘crowding out’ of private sector credit is a potential possibility, according to RBI Governor D Subbarao. He was speaking at Peterson Institute for International Economics, Washington DC.

“Surely, yields on government securities had firmed up, but only modestly. Even as fiscal deficit this year, as a percentage of GDP, is lower, the absolute amount of government borrowing in gross terms is roughly of the same order as in last year,” Mr. Subbarao said.

The RBI Governor said that Indian economy should move towards liberalization of capital account gradually and the path should be revisited periodically to effect changes to suit global and domestic economic conditions and to avoid the mistakes that led to the crisis. “Our position is that capital account convertibility is not a standalone objective but a means for higher and stable growth,” he said.

Mr. Subbarao continued, “We prefer long-term flows to short-term flows and non-debt flows to debt flows. The logic for that is self-evident. Our policy on equity flows has been quite liberal, and in sharp contrast to other emerging economies, which liberalized and then reversed the liberalization when flows became volatile, our policy has been quite stable.”

“Historically, we have used policy levers on the debt side of the flows to manage volatility. This has been our anchor when we had to deal with flows largely in excess of the economy’s absorption capacity in the years before the crisis. This has been our policy when we saw large outflows during the crisis. And I believe this will continue to be our policy,” he added.

For the power hungry economy of Indian, General Electric Co. has an exciting solution. The company has decided to enter into a joint venture with another company in India to manufacture and export steam turbines, which are vital in the production of thermal power. The company wants to build its base in India and expand its operations from there. Not only is this good news in terms of lower costs for setting up and manufacturing thermal power, but may also give a boost to the GDP,  a large part of which is dependent on foreign trade.

As the political ties between India and USA warm up, there is a likelihood for more such deals to go through. Technological cooperation for one, has been made much easier. This envisaged joint venture between GE and Triveni Engineering and Industries Ltd. is believed to have a capacity to manufacture 30-100 megawatt steam turbines. The manufacturing plant itself will be located near Bangalore.