India's service sector grows 7.8 p.c in June qtr

NEW DELHI, INDIA:India's service sector marked a growth of 7.8 per cent compared to 10.2 per cent in the corresponding period of the last fiscal, while the overall economy grew 6.1 per cent in the June quarter from a year earlier, roughly in line with forecasts, as government stimulus measures helped spur demand, although a poor monsoon threatens to crimp growth later in the year even as it drives inflation.

The services sector, which accounts for more than 57 per cent of the economy's output, grew an annual 7.8 per cent in the June quarter, compared with 10.2 per cent in the year-ago period. Manufacturing output expanded 3.4 per cent in the June quarter while farm output was up 2.4 per cent, according to the the data on national income released by the Central Statistical Organisation (CSO).

The economy accelerated from its 5.8 per cent rate in the previous quarter, data showed on Monday, propelled by a pick-up in activity in the mining, manufacturing, electricity and services sectors from the previous quarter.

In  the communications sector, the total stock of telephone connections, including WLL and cellular, registered a growth rate of 42.7 per cent during the June quarter 2009, compared to the same quarter in 2008-09, said the CSA report.

However, when it comes to the quarterly estimate of the GDP at factor cost in Q1 2009-10, the growth rate was only 8.1 per cent compared to 13 per cent in the year-ago quarter.

Growth was just above analysts' median forecast of 6 per cent annual expansion, and economists said weakness in agriculture could be offset by growth in manufacturing and services later in the year.

Abheek Barua, chief economist at HDFC Bank in New Delhi, expects growth for the full year of 5.8 per cent, with agriculture declining by 3 per cent, although strength in industrial output and services may prompt him to lift his forecast.

He expects the Reserve Bank of India to hold off on any tightening measures until the end of 2009.

"I think by January they would want to send some kind of monetary signal to thwart inflationary expectations," he said.

"By April policy we will see the first rate hike of 25 basis points preceded by a 50 basis point increase in CRR (cash reserve ratio)," he said.

Data showed manufacturing output expanded 3.4 per cent in the June quarter while farm output was up 2.4 per cent.

The benchmark stock index trimmed losses to 1 per cent from 1.1 per cent before the data release.

The benchmark 10-year bond yield was unmoved at 7.45 per cent, its highest in 9-½ months, from before the release of the data. The partially convertible rupee was unchanged at 48.85/87 from earlier.

Last month, the RBI estimated growth during 2009/10 at 6 per cent with an upward bias. The finance minister said last week growth could rebound to 8 per cent next year.

(With inputs from CIOL bureau)