>GROSS DOMESTIC PRODUCTION FIRST HALF FINANCIAL YEAR 2012 (1H FY2)

Half-Yearly Performance

The agricultural sector has been a rather stable performer in FY12 so far. According to the first advance estimates, foodgrain production has registered a growth of more than 8.0% during the kharif season. Foodgrain Production of 124 lakh tonnes during this has been close to the target of 126 lakh tonnes. The target for the rabi season is set at about 119 lakh tonnes of foodgrains, which definitely appears achievable.

Interest rate sensitive sectors such as mining, manufacturing and construction have taken a beating in the first half this year, consequent on lower production and investments in the backdrop of rising interest rate regime.

The financing services segment has however, not been unduly harmed by the same. Banking activities may maintain performance even in the following months.

Growth in electricity, gas and water supply has been robust at 8.9% in H1 FY12, as supported by strong contribution of electricity in IIP for the period April-September FY12. Increased financial and burden and operational inefficiencies in power discoms, combined with lower domestic coal production and higher cost of imports could impact this sector in the coming months.

Expectations for H2 FY12

We expect an increase in GDP growth in H2 FY12 to 7.8% from the current 7.3% in H1 FY12. The underlying assumption for this expectation is a revival of growth in the manufacturing sector in busy season with stable performance from agriculture and sustained contribution of financial services.

The government may take a look at the social, community and personal services segment. With a widening fiscal deficit, limited tax revenue and thinning receipts from the disinvestment process this financial year, the government may consider contraction in public expenditure. Additionally, one has to factor in a base effect of non-tax revenue receipts from 3G/BWA auctions that had supported government finances last year, but will be largely absent this year.

Expectations for entire FY12

Industrial production this year has been hit adversely. However, with status quo in rates and a gradual reversal in the current regime, an improvement in industrial production may be expected in the remaining months of FY12.

Based on this assumption, we expect GDP growth to settle at 7.3% for FY12.

Sectoral growth rates are pegged at 3.5%, 6.2% and 8.8% for agriculture, industry and services sectors respectively. In particular, the performance of manufacturing and construction might recover, with growth projected at 6.8% for the year in the manufacturing sector.

Industrial production, in particular the manufacturing sector continues to remain a major risk factor for GDP growth in FY12.

To read full report: 1H FY12

RISH TRADER