http://kunalsthoughts.weebly.com/1/post/2009/11/q210-indian-gdp-better-than-expected.html). However, I was not quite convinced about the data.
Firstly, the government appeared to be too optimistic about the agricultural sector, strangely assuming that the agriculture growth rate in the quarter will be about 0.9%. However, in a year when the monsoon deficit has been 23%, the highest since 1972, and when drought has been declared in 299 districts during the monsoon itself (a record by itself), there seems to be an anomaly. Let’s look at what history has to say with regard to how the foodgrain production in particular and the agriculture sector in general was affected when monsoon played truant with India.
Secondly, the performance of the industry and service seems to be quite exemplary. Industry grew by 9.21% (aided by the supposedly high IIP numbers) while the service sector grew by close to 9%. Such good growth should ideally have translated into higher indirect tax revenues. On the contrary, however, the numbers available for the first eight month of the current year (i.e. Apr-Nov’09) tell an altogether different story. Despite a downward revision of the estimation of tax collection due to the ongoing stimulus package, the actual tax collection for the first eight months of the year is only 46% of the lowered target, with excise duty collected being a mere 42.7% of the target. As I have mentioned in my previous blog, something does not seem to be right.
My hunch is that the final number of Q2’10 maybe revised downward going forward. But India will be in good company. Japanese GDP estimate for quarter ending September has recently slumped from an initial estimate of 4.8% (annualized) to a mere 1.3% (annualized). Even the estimate of US GDP for the same period has been revised from 3.5% (annualized) to 2.8% (annualized) to a further 2.2% (annualized).
While the general consensus is one of bullishness, I would still like to wait watch. Only stability of the Q2’10 number and further improvement in the manufacturing data from Nov’09 onwards, post the closure of festive season, will convince me to change my outlook.