Will India GDP grow by more than 10% in this Financial Year?


The Government Report Card

 The Indian Government has recently released its “Mid Year Analysis for Financial Year April 2010 to March 2011.” The “report” is “a review of the trends in receipts and expenditure in relation to the budget at the end of the second quarter of the financial year 2010-2011 and Statement explaining deviations in meeting the obligations of the Government under the Fiscal Responsibility and Budget Management Act, 2003”.

Macro Figures: GDP grew at 8.9 percent for Q1 and Q2.

 Real GDP growth in first half of current fiscal has been estimated at 8.9 percent on year to year basis. On the demand side, private sector consumption grew by the growth in first two quarters has been fueled by 8.0% and 9.3% in Q1 and Q2 respectively. Gross capital formation or investment has surged to 18.9% and 11.5%, respectively, in Q1 and Q2 on year-on-year basis.

 Contributing to the growth was due to increased contribution of industry 36.4 [Q1], 29.3 [Q2] percent and Services 59.3[Q1] and 64.9[Q2] [Table 1.3 : Ref.1 Report].

 Agriculture growth which had stagnated last year due to a deficient monsoon is expected to recover this year with a normal season. The report states “acreage under crops has been more or less the same; but productivity gains are expected.”  Percentage increase in production due to productivity improvements are  expected to be large , food grains 10.39%, oil seeds 10.28%, sugar cane by 16.28% and cotton by whopping 39.93% as compared to last year [Table 1.5: Ref. 1 Report].

Infrastructure growth has not been so encouraging. During April-October 2010-11, power generation capacity addition of 7,020 MW has lagged far behind the target of 20,359 MW for 2010-11.  Similarly, building of National Highways has lagged behind significantly. “The physical target under the National Highway Development Authority is to complete 2,500 km length of roads, during 2010-2011; up to September 2010, 691 km has been completed.”

 On the other hand Telecom growth has been very high. Rural tele-density increased from 24.56 per cent in March 2010 to 28.46 per cent in September 2010 with 236.26 million rural telephone connections. The total number of telephones in the country crossed the 723.28 million mark September 30th, 2010. The overall tele-density has increased to 60.99% in Sept 2010.  According to industry reports cited in Economic Times, “India could have more than one billion mobile phone users by 2015, with the bulk of that growth in rural areas.” [Reference 5] 

 Encouraging Figures

 According to Dominique Strauss-Kahn, Managing Director of IMF, “in terms of economic growth and inclusive growth, India’s growth is amazing,”  According to him, the growth is well managed and orderly, “You [India] are running as fast as you can. More will be probably too much, so far it is very well managed”. [Reference 2]  

The figures are indeed impressive if one were to also to consider the growth rate achieved by perennially “BIMARU” or “sick”states, which have pulled down the growth rate.

BIMARU (for BIhar, MAdhya Pradesh, Rajasthan, Uttar Pradesh) is an epithet coined by taking the first letter of four northern Indian states which means “sick” in Hindi. The growth rate of Bihar has been nothing short of spectacular.  

According to the Times of India article:

Significant is the fact that Bihar has discovered the magic of rule of law, which is issue based politics rather than caste or religion based one . Other BIMARU states have also shown impressive performance pointing to inclusive growth. [Reference 3] 

 Another report in Times of India says:

 The feel-good factor in Bihar is not the result of a sleight of hand by any magician, but of elaborate planning and concerted action by the Nitish Kumar government in the last five years.  Kidnapping for ransom, the only thriving industry in the earlier years, has declined as Bihar’s sunshine sector.  [Reference 4]


 Earlier an article pointed out that women SHGs and micro-finance are robust financial lifelines between rich and poor [Reference 6].  However, recently Micro finance has come under the lens due to criminalization and scandal. [Reference 7]

Rather than throwing the baby with bad bath water, better regulation is needed for micro-finance. The government has correctly identified the issues :

“The system has come under attack lately because of the suicide of farmers, especially in the State of Andhra Pradesh that accounts for nearly 30 per cent of the micro-finance portfolio in the country. The high interest rates of 26% to 30% per annum and coercive methods of recovery are regarded as the contributing factors…. While we do need to regulate micro-finance, we must not make the mistake of regulating it out of existence.” [Box 1.2 Ref. 1 Report]


Various regulatory mechanisms including regulatory authorities are under consideration to remove the criminalization.


Inflation is easing. Banks have increased the borrowing and lending rates and it is expected that the Repos rates will remain untouched by the Reserve Bank of India.  

External Trade and Exchange Rates

 The foreign exchange reserves are comfortable at US$ 298 billion. The Rupee appreciated by whopping 20 percent based on 6-currency trade-based real effective exchange rate (REER) between March 2009 and March 2010. [Table 1.14 Ref.1 Report]  

 Concluding Remarks: Peek Into The Future

Prediction, especially for economic performance, is a very hazardous business with a distinct possibility of making a face plant.  But if advance tax income tax receipts [growth of 40%], the surge in capital flows and the book to bill ratio of many industry, and the bottoms up secular growth are any indication, the Indian Elephant [or Cow as some commentators including this one call India]  seems to be on a roll.

 It would not be surprising if double digit growth is reached in this financial year.


  1. Mid-Year Analysis 2010-2011by Government of India, Ministry of Finance, Department of Economic Affairs, Economic Division. http://finmin.nic.in/reports/MYR201011English.pdf
  2. New miracle economies: Bihar, poor states: http://blogs.timesofindia.indiatimes.com/Swaminomics/entry/new-miracle-economies-bihar-poor
  3. Indian economy’s growth to match IMF forecast: http://economictimes.indiatimes.com/news/economy/indicators/Indian-economys-growth-to-match-IMF-forecast/articleshow/7029166.cms
  4. Bimaru to boom: http://timesofindia.indiatimes.com/home/sunday-toi/special-report/Bimaru-to-boom/articleshow/7002575.cms
  5. India to have ‘billion plus’ mobile users by 2015: http://economictimes.indiatimes.com/News/Economy/Finance/India-to-have-billion-plus-mobile-users-by-2015-executive/articleshow/5242284.cms
  6. Women SHGs and Micro-Finance: Robust Financial Lifeline Between Rich and Poor: https://econintersect.com/wordpress/?p=1046
  7. MFI agents ‘forcing’ debtors to commit suicide: Study: http://timesofindia.indiatimes.com/india/MFI-agents-forcing-debtors-to-commit-suicide-Study/articleshow/6778229.cms

Related Articles

 Financial systems in developing countries:  How the poor lift themselves out of poverty  (An Interview with Robert Townsend)  by Admin

Women SHGs and Micro-Finance:  Robust Financial Lifeline Between Rich and Poor  by Sanjeev Kulkarni

The poor half billion:  What is holding back lagging regions in South Asia?  by Ejaz Ghani

How Can South Asia Overcome its Infrastructure Deficit?  by Ejaz Ghani

3 replies on “Will India GDP grow by more than 10% in this Financial Year?”

  1. While not disagreeing with the double digit growth forecast ( in fact, I actually belong to the class of observers who feel that the Indian economy is already growing at a far more robust rate than the official figures reveal – as almost 20% of the legitimate economic activity traditionally goes unreported/underreported because of its peculiar nature and/or lack of adequate survey data), but nonetheless I would like to expand upon Sanjeev’s comments relating to Inflation.

    Inflation appears to be easing but oil prices threaten the elusive stability on this front. The rapidly increasing car sales that we proudly boast about also results in higher and higher oil consumption. International oil prices , now touching USD 90 per barrel are slated to cross the 100 dollar mark early next year. As Indian oil companies now responds to such changes with monthly retail price hikes, it could result in a slowing down of the economy as a beleagures RBI puts in measures to fight the resultant cost push inflation.

    At the same time, Reserve Bank has already tightened the market to the extent that Banks have to borrow over Rs 1100 billion in overnight repos from RBI everyday. This shortage of liquidity in the banking system has actually made the banks go slow on fresh loan proposals and investments. In fact, we have the very odd situation where the RBI first sucked out more than Rs 1000 billion through successive hikes in the Cash Reserve Ratio but is now forced to offer back a similar amount to banks through a temporary drop in the Statutory Liquidity Ratio. The room to maneuver
    is progressively getting tighter.

    So we have the banking system already under extreme stress and balanced quite precariously and any further increases in retail oil prices would put it under further strain, ultimatley affecting the smooth flow of credit to a hungry growing economy. I can only conclude that the present liquidity impasse calls for some innovative measures from the central bank ( and the government ) which could include a CRR cut ( yes, a cut ) by at least 50 basis points, cancellation of some GOI auctions ( government alreasy has overflowing coffers) and a possible freeze on retail oil prices ( this has worked in the past in India defying conventional wisdom).

    Barring inflation/liquidity related setbacks, I fully agree with Sanjeev’s forecast.

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