The numbers are as per the expectations and are in line with the policies adopted by the Government. Says, Rajiv Kumar, director and chief executive, ICRIER, “This is an expected outcome of the design to cool down the economy a little and the Government policy has achieved the result it wanted.”

So where are we heading? Will we be able to sustain the momentum gained four years back?

With a growth rate of 8.6 per cent, the manufacturing segment has suffered a major setback. The sector has fallen 4.1 percentage points as it stood at 12.7 per cent for the same quarter the previous year. By comparison, the year-on-year fall for the first quarter estimates for manufacturing segment was only 0.4 percentage points.

While in 2006-07 Q2 growth figures (12.7) witnessed an increase of 0.4 percentage points over Q1 (12.3) of the same year, this year the segment showed a dismal performance. The growth figures in Q2 (8.6) dipped 3.3 percentage points as against 11.9 achieved in Q1. This implies that something has impacted this segment. According to Suman K Bery, director general, National Council of Applied Economic Research (NCAER), “Other than the monetary policy that has impacted the manufacturing sector, there has been a softening of demand in the consumer durable segment that has impacted it.”

The numbers suggest that other than the manufacturing segment, trade, hotels, transport and communication segment has also witnessed a slowdown in growth. The year-on-year decline for Q2 is 2.8 percentage points and the quarter-on-quarter decline is 0.6 percentage points. “The sector is bearing the brunt of the tightening monetary policy,” added Bery.

Other than these, there has been a slight decline in the financing, real estate and business services segments too. This is again an outcome of the tightening of monetary policy.

The recent fall in these two sectors has become a rising concern. Manufacturing and trade, hotels, transport and communication segment were growing fastest and pulling India’s GDP growth rate up. The two segments when combined have a weightage of 44.3 per cent in the GDP, as per the latest aggregate figures.

According to Rajeev Malik, Asia economic research, JP Morgan Chase, Singapore, “Growth is likely to moderate further owing to the more complete pass-through of monetary tightening. Additionally, rupee appreciation and softer external demand will also contribute to the anticipated moderation in economic growth.”

So, if there is a fall in growth rate and more so in the two fastest growing segments, how are we going to sustain our growth momentum?

According to Kumar, “We have almost reached the potential output of 8.5-8.7 per cent of the economy. Any further tightening of interest rates could lead to low credit availability and further downturn in demand.”

So what do we need now, if the slowdown is happening in the potential growth pullers, where will the sustenance come from? “We need a well calibrated policy that prevents further appreciation of rupee and makes sufficient credit available. For this, firstly the booming capital inflows should be constrained along with better planning of infrastructure development to increase the absorptive capacity of the economy. Along with this, we also need to increase export demand so that fall in domestic demand can be covered,” added Kumar.

Amidst all the worry on the manufacturing and trade, hotels, transport and communication segment, there lies the agriculture segment that has done significantly better this year. The average growth rate for agriculture from 1950 to 2006 has been 2.8 but the segment grew by 3.8 per cent in Q1 and 3.6 per cent in Q2 2007-08. According to Bery, “Better monsoon this year has helped the sector to do well and this will help in raising the consumption levels of rural India.”

So is there any positive that is emerging here? “The impact of interest rate and currency appreciation on manufacturing might get offset by the increasing consumption levels in the agriculture sector,” added Bery. Mining and Quarrying segment has also seen its growth numbers doubling from 3.9 per cent in Q2 2006-07 to 7.7 this quarter. But the weightage of the segment stands only at 1.9 per cent of the GDP and hence is of little help.

The strength of our economy has been domestic demand and the situation is not the same. The high-interest-rate regime that the RBI has been forced to adopt is a result of liquidity pressures and inflation. This is leading to a decline in domestic demand and seems to be there for some more time. “The key thing for policymakers is to manage inflation, liquidity and growth and I think we will remain at these interest rates till March 2008,” said Sandesh Kirkire, chief executive officer, Kotak Mahindra AMC.

So, is the slowdown in the GDP numbers bringing in any signs of worry for the economy? As Bery puts it, “There is nothing to worry, and we expect the GDP growth rate for the year 2007-08 to remain a little below 9.”