Irrespective of what some experts might want us to believe, India’s economic growth this year is unlikely to breach the 6 per cent mark in real terms. An analysis of the GDP growth number during the previous two quarters viz the last quarter of 2008-09 and the first quarter of 2009-10 clearly revealed that with domestic demand stagnating, it was the high level of government expenditure that saved India the blushes. Added to that was the decent performance by the agricultural sector. However, with monsoon having failed, leading to severe droughts in a large number of states (especially up North) and floods in a few states (down South), the spring season (or the khariff) crop has been badly affected. For the next two quarters, therefore, contribution of agriculture is ruled out of the equation.

Going forward, the bigger question is whether industry can shoulder the burden. It’s quite possible that it might not. The Index of Industrial Production (IIP), which started tapering off from August 2008, has shown signs of a rebound during June, July and August this year. But sustainability remains a question. The increase in production has a lot to do with demand generated through a substantial increase in government spending in the rural segment and the huge arrear payment received by the government employees in keeping up with the recommendation made by the 6th Pay Commission. This also coincided with the inventory built up that was taking place keeping in mind the likely surge in demand for the forthcoming festive season in India. However, it is quite likely that the tailwind is dying down as is evident from the fall in collection of excise duty data in September. It is quite likely, therefore, that the September IIP number would look anaemic.