The Gross Domestic Product (GDP) expanded during the second quarter (July – September) of the fiscal year 2010 by 7.9%. The key drivers for this strong figure are:
- Pickup in manufacturing sector
- Increased government expenditure
- Robust investments
- Lower interest rates
- Higher government salaries & pay commission arrears
- Increased incomes especially in the rural areas due to greater social spending and high farm goods prices
- Modest growth in farm output despite drought
In the first quarter (April – June) of the present fiscal year, the economy had expanded 6.1%. Interestingly now, the growth is close to the same level (i.e. 7.7%), of the second quarter (July – September 2008) of the fiscal year 2009, thus indicating that the economy is back on the health track. The stock market too has cheered this news during the week.
Given the attractive GDP numbers, we believe there are likely chances of:
- Government withdrawing stimulus – certainly beginning the phasing out over next few months
- RBI tightening interest rates soon
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