Growth in gross domestic product, or GDP, for Q2 FY09 has come in at 7.6% as compare to 9.3% YoY, and 7.9% QoQ. A CNBC-TV18 poll had estimated it at 7.25%.

Sector                                 Apr-Sep             Apr-Sep

2008-09                             2007-08

Agriculture                             2.7                         4.7

Mining                                   3.9                         5.5

Manufacturing                        5.0                         9.2

Power & gas                          3.6                         6.9

Construction                          9.7                        11.8

Hotel, Trans, Comm              10.8                        11.0

Financial services                   9.2                        12.4

Other services                        7.6                         7.7

GDP numbers came in better than expected because of agriculture, construction and hotel and transport.  Some believe this may be the last 7% plus number for at least four quarters. Markets are also expecting an RBI rate cut soon.

Samiran Chakrabarty, Chief Economist of ICICI Bank, feels the GDP numbers are more or less in line with expectations. He added the GDP number for the second half of the year it likely to see growth rate which will be somewhat less than 7%. "My suspicion is that will take overall GDP growth for FY09 to be just about 7%. For FY10 the analysis becomes much more complex because the critical element in the GDP growth forecast for India becomes the volatility investment number," he said.

Here is averbatim transcript of the exclusive interview with Samiran Chakrabarty on CNBC-TV18. Also watch the accompanying video.

Q: Anything specific that stood out, do these numbers show resilience or did you much––your forecast was that we are going to go with 7–7.5% this year?

A: This is more or less in line with our expectations because as we discussed earlier also that there are certain trends in the service sector which takes time to show up in GDP data and we are yet to see those trends coming in.

If we analyze this data very carefully, we will see that the three interest rate sensitive sectors of construction, manufacturing and financing real estate, etc. are the only sectors which are showing some decline from last year.

So my point is that till Q2, one will be seeing the cyclical moderation that we were experiencing for two-three quarters now. Q3 data will be the interesting data where one is likely to see impact of the liquidity crunch as well. So that is why this 7.6% number is not surprising at all.

Q: How bad can it get in Q3 and Q4?

A: We could see a sub 7% growth as well in Q3 and Q4. However, a lot will again depend on the kind of policy stimulus and how long they take to walk through the economy and little bit also we have forecast about how bad the situation can get globally form here. So on the forecasting front there is too much of uncertainty at this point of time but definitely challenging times ahead.

Q: Give us the number with the available data of what you are expecting for the second half of the year and more importantly take us through what your estimates are for FY10?

A: For the second half of the year it likely to see growth rate which will be somewhat less than 7%. My suspicion is that will take overall GDP growth for FY09 to be just about 7%. For FY10 the analysis becomes much more complex because the critical element in the GDP growth forecast for India becomes the volatility investment number. Consumption growth typically shows stabilized patterns compared to investment growth. Investment growth in turn depends a lot on the financing situation for investment.

Currently, what we are seeing is that 40% of corporate investment, which comes from capital issuance, Initial Public Offering (IPOs), American Depositary Receipt (ADR), Global Depository Receipt (GDR) and External Commercial Borrowing (ECB) that section is getting challenged a lot and the outlook remains uncertain on that segment. So, typically, this segment has to be substituted by domestic bank credit for investment growth to continue at a pace, which is significant.

Having said that I would say that the complexity of the situation that we are facing right now makes the forecast horizon really shorter and makes the confidence interval associated with any kind of forecast really low. So, I would not venture a particular number here for FY01.  We have to get more clarity on the way the credit squeeze happens globally and how we get impacted by it.  

Q: Give us one word on the construction space as well, numbers came pretty strongly this time but as we go into an election year, a lot of these infrastructure projects have been dependent on the government. Do you sense that that space would not hold up going forward?

A: One very odd thing about GDP calculation almost 40–50% of this construction number comes from things like rural housing and all and there is no doubt that these kind of segment still holds well going forward. And that would mean that this number would not drop, as sharply as one would have anticipated just looking at the infrastructure projects. Plus the fact that Rs 50,000 crore of fiscal spending goes towards infrastructure, we might actually see construction sector holding up pretty well.

Q: Since so much hinges on financing and its cost what would you advice by way of rate? Do you think seminal cuts can easily be done or do you think the inflation number is still a nag?

A: In inflation we all understand is something, which is on a declining trend and I don’t think any analyst would at this point of time will tell you that there are big inflation risks going forward. Yes, we all know that oil is a volatile element but still on a base line forecast we would still think of inflation numbers coming down pretty drastically, in the first half of the calendar year next year.