India Reports Acceleration in 2nd Q Growth, but Weak Monsoon Challenges Its Continuance

India's real gross domestic product rose 6.1% in the second quarter from the second quarter of 2008, up from the 5.8% year over year growth in the first quarter. It was the first acceleration in growth since the fourth quarter of 2007 when the global recession began to affect the Indian economy. Among the industries contributing to the acceleration in growth were manufacturing, mining and quarrying, electricity gas and water and the service industries covering trade, hotels, transport and communications. The year to year growth in these industries is shown in the first chart.

Earlier this year, the Reserve Bank of India forecasted that the economy would increase 6% in the fiscal year ending March 2010 while the Federal Government was estimating growth between 6.25% and 7.75%. Since then, the weak summer monsoon, reducing prospects for agriculture output, has cast doubts on these projections, Although agriculture has been declining in importance in the Indian economy for years (as can be seen in the second chart), it still accounts for a slightly larger portion of the economy than manufacturing. In fiscal 2008, agriculture accounted for 17% of total GDP and manufacturing for 15%. Agriculture output increased 2.4% in the second quarter over the corresponding period of 2008, down from the 2.7% increase in the first quarter. The recent announcement by the Farm ministry that 44% of the 625 administered districts reported drought or drought like conditions suggests a grim outlook for agriculture in the third quarter.