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Rama Krishna Vadlamudi, BOMBAY. www.scribd.com/vrk100 Dec. 1
st 
, 2009 
Page 1 of 8
With India’s 2009-10 Q2 GDP estimatesshowing a spectacular rise of 7.9 percent over the second quarter ofprevious year, is it time to open thechampagne and start celebrating? Thisarticle analyses the key drivers of therobust GDP numbers and what is theroad ahead for GDP and what kind ofpolicy response is likely from both thecentral bank & the central government.
Rama Krishna Vadlamudi December 1
st 
, 2009 
The GDP estimates from the Central Statistical Organisation (CSO) show that the country’s Gross Domestic Product (GDP) has grown by 7.9 per cent during the second quarter (Jul-Sep 2009) of this fiscal year 2009-10, beating consensus forecast of around 6.3 per cent by a wide margin. This has come as a welcome surprise to financial markets which were reeling under the Dubai Debt Crisis last week. This has given a big boost to sentiment in the stock markets on Tuesday,that is, November 30, 2009, with the Sensex closing at 16,926 points, up 1.8%.So, is it time to open the champagne as far as economy is concerned? Or, is it time to remain cautious? The second quarter GDP growth is led by manufacturing and services sector, with a big booster from mining sector (due to increased gas output from KG basin). Even private consumption and government expenditure have boosted the economy to some extent. Moreover, agriculture had clocked a growth of 0.9 per cent despite drought conditions exacerbated by flash floods during the last quarter.The immediate consequence for the excellent GDP numbers is that the RBI may be tempted to start raising interest rates much earlier than expected. It may spur the RBI to raised CRR at least by 50 points by the end of December, even as inflationary pressures are building up in the economy in the form of higher food inflation, which is at a record high of 15 per cent now. The higher GDP numbers also indicate the government authorities will scale up the GDP forecast for the full year 2009-10, from the present 6.5 per cent up to 7 per cent or a little lesser and concomitantly will have to start thinking about winding down their fiscal stimulus sooner than later.
This article analyses the factors driving the numbers and what the futureholds in terms of GDP for the fully year and the outlook on interest rates:
 
Rama Krishna Vadlamudi, BOMBAY. www.scribd.com/vrk100 Dec. 1
st 
, 2009 
Page 2 of 8
What are the highlights of the Second Quarter GDP? 
GRAPH 1: Quarterly GDP growth rate %:
India’s GDP is estimated to have grown by7.9 per cent during the 2
nd
quarter of fiscal2009-10This is a big surprise for the markets asthe figure is much above the expected figureof 6.3 per centThe stupendous GDP growth rate of 7.9 percent is led by manufacturing sectorMining and electricity sectors have givena big boost to the GDP numbers, whileconstruction has slowed down a bit
* GDP at factor cost at constant prices (1999-2000)
GRAPH 2: Half-yearly GDP growth rate %:
The GDP has recorded a growth of 7 per centduring the first half of fiscal 2009-10.This is against the 5.8 per cent recordedduring the second half of 2008-09 and 7.8 percent exhibited during the first half of 2008-09Gas output from Reliance Industries’ Krishna-Godavari Basin (DG) has boosted theperformance of Mining segment in Q2High Government expenditure funded almost
funded by huge borrowings gave a fillip to GDP
 
* GDP at factor cost at constant prices (1999-2000)
GRAPH 3: QUARTERLY GDP NUMBERS (Rs ‘000 crore):
As can be seen from the Graph 3 depicted below, India’s Gross DomesticProduct was projected at Rs 8,34,800 crore during the second quarter of fiscal2009-10, that is for July-September 2009. This is against the GDP of Rs 7,73,900crore achieved during the second quarter of 2008-09, showing a robust growth of7.90 per cent year on year. These GDP figures are at factor cost at constantprices (base year 1999-2000).
 
Rama Krishna Vadlamudi, BOMBAY. www.scribd.com/vrk100 Dec. 1
st 
, 2009 
Page 3 of 8
Quarterly GDP numbers *
834.8830.6902.9880.0773.9782.6700.0750.0800.0850.0900.0950.0Q2Q1Q4Q3Q2Q1Jul-SepApr-Jun Jan-MarOct-DecJul-SepApr-Jun2009-102008-09
   R  s   '   0   0   0  c  r  o  r  e
 
* GDP at factor cost at constant prices (1999-2000)
What are the factors that contributed to the spectacular numbers? 
The 7.9 per cent GDP growth rate was spurred by a good show put up bymanufacturing, mining and services sector
Manufacturing has grown by 9.2 per cent against 5.1 per cent achieved in Q2of 2008-09
Mining and quarrying sector (bolstered by Reliance Industries’ KG basin gasoutput) has risen by 9.5 per cent versus 3.7 per cent recorded during Q2 of2008-09 (at full output, the KG basin’s gas output alone is expected to add0.3 per cent a year to the country’s GDP)
Services sector has shown a growth of 9.3 per cent against 9.8 per centregistered in Q2 of 2008-09
Construction has grown by 6.5 per cent (9.6 per cent) signifying a slowdown
Agriculture growth also stood at 0.9 per cent against the expectations of anegative growth
Private consumption has picked upObviously, the impact of drought has not got reflected in the second quarter ofthis year in Agricultural GDP. The impact may be severe during the third quarterof this year affecting the Agricultural output in a substantial way. As per theofficial estimates, output of rice, coarse cereals, pulses and oilseeds is expectedto decline by 18, 20, 7 and 15 per cent respectively during the Kharif season of2009-10 as compared to the Kharif season in 2008-09. (Kharif season in Indiaaccounts for about 65 to 70 per cent of India’s agricultural output. The farmsector itself accounts for 17 per cent of India’s GDP.)
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Rama Krishna Vadlamudi

Hi, the third quarter GDP figures were released on Feb. 26, 2010. I prepared a document on the subdued growth of GDP for Oct-Dec 2009 quarter. This can be accessed at GDP GROWTH of INDIA-Subdued Third Quarter Growth-Oct-Dec 2009-VRK100-02032010...RAMA KRISHNA VADLAMDUI, BOMBAY

reply09 / 14 / 2011
Rama Krishna Vadlamudi

Hi, all, the TOTAL READS of this document have surpassed the all-important milestone of 1,000 today. Thanks to everybody --- RAMA KRISHNA VADLAMUDI, BOMBAY.

reply09 / 14 / 2011
Rama Krishna Vadlamudi

Hi, the third quarter GDP figures were released on Feb. 26, 2010. I prepared a document on the subdued growth of GDP for Oct-Dec 2009 quarter. This can be accessed at GDP GROWTH of INDIA-Subdued Third Quarter Growth-Oct-Dec 2009-VRK100-02032010...RAMA KRISHNA VADLAMDUI, BOMBAY

reply09 / 14 / 2011
Rama Krishna Vadlamudi

Hi, all, the TOTAL READS of this document have surpassed the all-important milestone of 1,000 today. Thanks to everybody --- RAMA KRISHNA VADLAMUDI, BOMBAY.

reply09 / 14 / 2011
Rama Krishna Vadlamudi

Hi, the third quarter GDP figures were released on Feb. 26, 2010. I prepared a document on the subdued growth of GDP for Oct-Dec 2009 quarter. This can be accessed at GDP GROWTH of INDIA-Subdued Third Quarter Growth-Oct-Dec 2009-VRK100-02032010...RAMA KRISHNA VADLAMDUI, BOMBAY

reply03 / 14 / 2010
Rama Krishna Vadlamudi

Hi, all, the TOTAL READS of this document have surpassed the all-important milestone of 1,000 today. Thanks to everybody --- RAMA KRISHNA VADLAMUDI, BOMBAY.

reply03 / 14 / 2010
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