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 NEW DELHI: The Indian economy is growing much faster than even the most optimistic had dared hope with official data released on Monday pegging growth in the second quarter (July-September) at 7.9% year-on-year.

Not only is this much higher than the 6.5% estimated officially earlier, it bodes well for the future since it comes over the quarter last year that immediately preceded the slowdown. 

Understandably cheered up by the highest quarterly growth registered in the the last 18 months, finance minister Pranab Mukherjee said it was a result of the centre's stimulus packages and hoped that this would provide the ground to post at least 7% growth for the full year 2009-10. 

``Taken together, the two quarters, I do hope it will be possible for us to achieve 7% plus, but still it is too early to predict. I will wait for the third quarter figures,'' Mukherjee said. 

The bad news may be that the better-than-expected growth figures will mount more pressure on the RBI to tighten its purse-strings and the government to roll back some of the sops such as duty concessions. For consumers, that could mean higher interest rates and more expensive housing, cars, consumer durables etc. Probably even fuel. 

The remarkable September growth has been made possible because the farming sector beat monsoon worries to perform better than expected. Figures for agricultural output showed an increase of 0.9% against expectations of a decline due to a poor monsoon. But there may still be some cause for worry as the poor monsoon's impact is likely to be seen in the December quarter when the actual shortfall will get reflected in the data. 

In contrast, manufacturing output expanded 9.2% in the September quarter as consumers made a beeline for car and white goods showrooms. The economy had posted a growth rate of 6.1% in the June quarter year-on-year, which was already an improvement over the 5.8% rate registered in the previous two quarters. 

Growth was weakest in six years at 6.7% in 2008-09, while it scorched at around 9% in the three preceding years. 

As a pointer to continuing consumer interest, this factor accounted for about 53.5% of spending in the economy in the July-September period, roughly in line with 53.4% a year ago. The government's share of spending rose to 10.6% from 8.7% on the back of stimulus spending. 

Buoyed by the numbers, Planning Commission deputy chairman Montek Singh Ahluwalia on Monday allayed any serious concerns over inflation and said he did not expect any change in the government's stimulus policy. ``It is difficult to project what will happen in the rest of the year. But this performance does suggest that there may well have to be an upward revision in the GDP growth of 6.5% which has been projected so far.'' 

Last week, finance minister Pranab Mukherjee and others in the government had expressed concerns over rising food prices owing to the bad monsoon and floods in some parts of the country. These worries have lent strength to those arguing that it is time for the RBI to tighten monetary policy and the government to start winding down the stimulus measures. 

The RBI too has warned that the poor monsoon is more likely to drive inflation than to curb growth. The index of food prices jumped 15.6% in the year to mid-November, although supply-side inflation is largely beyond the purview of monetary policy. The central bank cut its key lending rate by 425 basis points between October 2008 and April, while the government slashed duty rates and stepped up spending to pump-prime the economy and prevent massive job losses. 

The RBI forecast growth during 2009-10 would come in at 6% with an upward bias. The finance minister said last week growth could be 6-7% in 2009-10 and rebound to 8% next year.

Coimbatore Taxi news team

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