Agri GDP, at constant prices, for the half year ending Sep 08 was Rs 2, 38,000 crore where as manufacturing & electricity, gas and water supply GDP for the same period was Rs 2, 76,000 crore.Growth rate of GDP of manufacturing sector fell sharply by half to 5.3% from 10.1% and that of electricity, gas and water supply decreased by more than to 3.1% from 7.4%.Yet credit off take of industry increased by Rs 60,400(from Mar 08 to Aug 08), more than 50% of the incremental credit,while credit to agricultural sector actually decreased by Rs 11,000 (minus 10%) crore during the same period. The ratio of agricultural credit to agricultural GDP was only 33 per cent at end-March 2007 where as the ratio of industrial credit to industrial GDP was a whopping 94%. Despite such high credit increase to industry, the sector’s growth rate was reduced by half, and yet industry is crying for more money. In fact RBI, at the behest of Finance Ministry, did increase liquidity by a whopping sum of Rs 1, 80,000 crore in October 08. Government pleaded with the industry to cut the prices of their goods to enable people to buy their products, but industry refused and made a counter demand to cut interest rates, dilute prudential norms and give more credit to them. This response of a sector is akin to having the cake (read money) and eating it too (read absorbing like a sponge without corresponding increase in production). Credit to farm sector has decreased and their voice-less complaints for a share of 18% in bank credit are going unheeded. If farm sector is given direct finance of 8% invest finance and 10% of crop loans, the agri GDP growth rate of 4% can easily surpassed and this sector will be the growth driver in this period of industrial slowdown.

The above data does not reflect the developments since October and adverse economic impact of terrorist attacks on Mumbai In November. The last two months have seen a sharp contraction in economic activity as a direct consequence of the global credit crunch. The coming slowdown will specially manifest itself in the ‘trade, hotels, transport and communication’ sub-sector, which grew by 10.8 per cent in July-September, on top of 11 per cent during the same quarter of last year. CMIE has said that the industrial output is expected to grow by 6.3 per cent in FY'09 as against its earlier estimate of 8.3 per cent. "Sharp downward revisions in forecasts of electricity, textiles, cement, commercial vehicles, machinery, fertilisers, crude oil, petroleum products, man-made fibres and PVC pipes and tubes have pulled down our forecast for overall industrial production growth from 8.3 per cent to 6.3 per cent. Growth in IT sector is estimated to be halved too." However Prime Minister, who has taken over the portfolio of Finance, expressed confidence that despite economic recession and the difficult situation in western countries, India's growth rate would be maintained at around 7.5 per cent in 2008-09.

Decline in growth rate in AP too

A P, which registered a record growth rate of 10.63 % last year far surpassing the national average, is likely to close the year at 8%. The forecasts for agricultural and allied sectors too would come down. The agriculture sector (barring animal husbandry and fisheries segments) alone grew at 10 % last year. “Huge expenditure on irrigation facilities and expansion of credit base from Rs 16,000 crore in 2004-05 to Rs 43,000 crore helped the sector out-beat the national average. Animal husbandry and fisheries segments contributed to 40 %to the total agriculture sector against 25 % nationally, Govt. spokesman said.

What different Agencies predict about Prospects of Indian Economy?

ICRIER: India would have grown 7.5 per cent this year (a slowdown from 9 per cent in 2007-08), had the global crisis not occurred. The global crisis is likely to bring India’s growth rate to below 6% in 2008-09. With the first half GDP growth rate 7.8%, this implies a sharp slowdown in the next two quarters. In the first half of next year, the economy would have grown below 7% in the absence of the external crisis. The global crisis may reduce Indian growth rate to as low as less than 4 % in 2009-10.

OECD: Growth has continued to slacken to less than 8% by the second quarter of 2008. Inflation is high, driven by commodity prices, but the peak appears to have passed. The current account deficit has risen substantially and there is downward pressure on the exchange rate. The economy is projected to slow further over the next year and to recover in tandem with the world economy in 2010.Unchecked fiscal spending during the expansion has left the Indian authorities with little room for maneuver in the ongoing slowdown. At the same time, foreign institutions have become more reluctant to invest in India. A period of fiscal retrenchment (restraint) seems desirable, focused on making government subsidies available only to those in real need.

NOMURA-Japan: India's economic growth will start falling sharply from the fourth quarter of 2008 mainly due to a drop in investments, demand and exports. Potential fallout from last week's terror attacks in Mumbai is an added "downside risk. Nomura also cut its estimate for India's gross domestic product growth in 2008/09 to 6.8 per cent from 7.2 per cent, and expects 2009/10 GDP growth to slow to 5.3 percent from its earlier estimate of 6.9 percent, according to the note.

There are increasing signs of non-linear economic effects: vicious negative spirals from falling asset prices, sagging confidence, rising job losses, tightening lending standards and weakening demand, as well as increasing multiplier effects on domestic demand from the slump in exports. "We forecast inflation to ease sharply due to falling commodity prices and rising economic slack, and consequently expect the RBI to embark on an aggressive rate-cutting cycle,”

Increase in Fiscal Deficit

As of Oct 08, With the lower tax collections this fiscal, the Centre’s fiscal deficit has shot up to Rs 1,17,070 crore till October 2008, which is 87.8% of the full-year target. It was a little over half its full fiscal target at 54.5% a year ago. Revenue deficit too has surpassed the full year target of Rs 55,184 crore at 157.7% to amount to Rs 87,027 crore at October end this year. The Centre’s revenue deficit was much lower at 80.5% of the Budget estimate (BE) in October 2007.
Gross tax revenue growth slowed to 20.3% for April-October from a year ago.

Dip in Exports and Hike in Imports

India’s exports in October, 2008 registered a dip of 12.1 per cent and stood at $12.82 billion, as against $14.58 billion in the same month last year, when overseas sales of Indian goods had risen by nearly 50 per cent. In rupee terms, India’s export registered a growth of 8.2 per cent and stood at Rs 62,387 crore, as against Rs 57,641 crore in the same month last year. Exports during April to October period stood at $107.8 billion as against $87.14 billion in the same period last year, registering an increase of 23.7 per cent.
Imports during the month under consideration increased 10.6 per cent and stood at $23.36 billion, as compared to $21.12 billion in the corresponding month of 2007. With imports outpacing exports, the trade deficit grew by 61.25 per cent to $10.53 billion, compared to $6.53 billion in the month.

All the above indicators point toward slow down in industrial output. The one ray of hope is Agri GDP growth of 4%.In fact the growth rate of Agri sector could be much more if public investment in irrigation& rural power supply, Bank direct loaning to farm sector are doubled in the next three years and research & development and extension efforts are intensified.