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.

... contd.