Q4 GDP growth in FY07 is seen at 9.1% as compared to 10% in the same period last year. For FY07, GDP growth was 9.4% as against 9.2% last year.

The manufacturing sector grew 12.4% in Q4 FY07 as compared to 9% in the same period last year. Growth in the farm sector fell to 3.8% in Q4 FY07 as against 6.2% last year. GDP growth in construction sector fell to 11.2% in Q4 FY07 as compared to 16.1% in the same period last year.

DK Joshi, Principal Economist, Crisil, said the RBI policy has not been able to dent overall growth in the economy as of yet. He expects a moderate inflation tomorrow.

Excerpts from CNBC-TV18’s exclusive interview with DK Joshi:

Q: Very strong numbers on the face of it?

A: The aggregate growth for 2006-07 has been 9.4%, which is much more than what was expected. The advance estimate was 9.2%, which is despite interest rate hikes and all those things. The RBI policy has not been able to dent overall growth in the economy as yet.

Q: What did you make of the GDP revision that has just come by at about 9.6% for the first quarter?

A: These revisions keep taking place because with advance estimates, which came out earlier, there is always some error in measurement. They get perfected as time goes by; so some revisions are to be expected. Overall, I would say the picture looks very healthy right now.

Q: The farm sector has delivered a good set of growth for this particular quarter, taking its average up to about 3.8%. Was this factored into your calculations?

A: No, we were thinking of a lower growth in the farm sector earlier; so this is better than expected. The real growth driver has been the manufacturing sector, which is what is interesting in this whole thing. Apart from manufacturing, sectors such as trade, hotel, transport and communication are all surging ahead at a fast rate.

Q: The CSO is revising Q1, Q2 as well as the Q3 GDP figures higher. How would you rationalise this revision in the light of the kind of interest rate concerns and the measures that the RBI is taking to curtail this growth?

A: What it means is that the RBI policy has not been able to bring growth rates down from their last two-three years level. I do not give much importance to these revisions because the CSO data keeps getting revised; so it is not something unusual. From the policy perspective, it means the growth momentum is much higher than what the central bank is expecting and as the inflation is also slightly higher than their comfort bands, these two things put together indicate some pressure on interest rates.

Q: With the GDP numbers coming out strong, is there concern about inflation figures, which will come out tomorrow?

A: Inflation is expected to be moderate tomorrow. The market is expecting it to go down even further from 5.3% to close to 5.1-5.2% tomorrow.

Q: Does this mean that the interest rates have peaked and we may not be looking at the central bank making any moves in that direction?

A: That is too early to conclude, because unless the inflation figure reaches 5% and sticks there for an extended period of time, RBI is not going to get convinced. The high growth means that there is a demand-side pressure on inflation. Unless the growth moderates a bit, I think the RBI will maintain a tight monetary policy stance.
 

Q: Do you think we can maintain this growth in the next few quarters as well?

A: No, I think next year we will start seeing some slowdown. If you notice today’s GDP data, the construction sector is showing some slowdown, as it is an interest rate sensitive sector. Consumer durables are also showing a slowdown. I think all that will lead to some growth moderation in 2007-08. We expect growth to be close to 8.2-8.3% from these 9.4% levels, which we saw in 2006-07. So, growth is expected to moderate in 2007-08.