In tune with expectations, the overall economic growth during the first quarter of the current fiscal was at an impressive 8.8%, higher than the preceding quarter’s 8.6% and 6% during the comparable period of 2009-10.
This smart leap has, however, been accompanied by a double-digit rate of inflation too. At current prices, that is factoring in the price rise, the surge in GDP has been a “phenomenal” at 21.7% in contrast to a mere 7% a year ago.
The robust performance of the economy, as captured by the spurt in real GDP,has been largely due to the exceptionally strong showing in the secondary sector, especially manufacturing, a revival of sorts in the primary sector and a pick-up in the pace of real output emanating from the tertiary sector.
But, there is a flip side to this.. The rate of gross fixed capital formation, which has consistently topped the 30% mark for 17 quarters in a row, dipped to 29.8% during the first three months of 2010-11.
This represents a setback from the 34.2% rate achieved during the preceding quarter; hopefully, this is no more than a pause in investment activity and not a precursor to a slackening of the pace in this respect.
The GDP data also underscores the inflationary times, the economy has passed through between the first quarter of the last fiscal and the current fiscal.
In nominal terms, economic expansion has been of the order of 21.7% during the latest period - as against 8.8% at constant (2004-05) prices - which is three times faster than the 7% spurt a year ago —when the real growth was 6%.
The widening differential between current and real GDP increases during the April-June period of 2010-11 and of the preceding year is explained by the fact that, the GDP deflator-based inflation has zoomed to 11.8% now from a mere 0.9% at this point of 2009-10.
The wholesale price index-based inflation rate stood at 10.6% during the first quarter of the current year and the consumer price index-based inflation rate was 13.7%.
The most comprehensivemeasure of inflation — the one based on GDP deflator — was in between these two widely followed barometers of the price movements;this indicates that, at least for the latest three-month period, the wholesale index has under-estimated the actual order of the price increase while the consumer price index for working class has over-estimated the inflation numbers. But, as broad approximations, both are good as inflation-measures.
According to the figures released by the CSO, the gross product originating from agriculture and allied sectors increased by 2.8% during the three months ending June 2010 from 1.9% a year ago.
Though cereals and sugarcane output were lower, the harvest of pulses and cotton was larger, with an on balance improvement in the overall farm growth rate.
The secondary sector had fared well, with the tempo rising to 10.3% during the latest period from the earlier year’s 4.6%. Manufacturing — 12.4% as against 3.8% — and construction — 7.5% as against 4.6% — had provided the main impetus to this improvement. The growth rate of the mining sector was a shade better but electricity & allied sectors managed to maintain the previous year’s growth of 6.6%.
In the case of the tertiary sector which has emerged as a key driver of the economic growth of late, though the overall pace of its contribution to real GDP during the April-June 2010 period had increased to 9.7% from 7.9%, the major constituents reported a mixed performance.
Real GDP from trade, hotels and transport & communications rose sharply to 12.2% from the year ago figure of 5.5% but there was a slowdown infinancing, insurance, real estate & business services to 8% from 11.8% and in community, social & personal services to 6.7% from 7.6%.
The disquieting element in the economy during the first quarter of the current fiscal, however, is the setback to investment activity.
The rate of gross fixed capital formation has slowed down to 29.8% which is a new low for the recent period.
The rate of private final consumption expenditure has accelerated to 58.2% from 57.4% a year ago while a only a marginal dip is evident in respect of government final consumption expenditure - 11.4% as against 11.5%.
The government and the Reserve Bank of India have pegged the economic growth rate at 8.5% during 2010-11. The first quarter actual has been slightly better at 8.8%. With the monsoon “ behaving’ well, the kharif outlook is bright, and hence the prospect of a smart pick-up in agricultural growth.
The services is a buoyant segment; therefore much hinges on how the secondary segment, and in particular, manufacturing fares in the months ahead. A spurt of eight% and more is within the realm of possibility but raging inflation may strike a discordant note.
Rather than worrying about growth where we seem to be on course, the focus should shift to quelling the price fever
This is a news to me. 
