2 Economic Growth, Savings and Investment

 

2.1 Overview

The economy saw a marked improvement during FY03. Prompted by a broad-based recovery in agriculture, strong growth in industry, and a reasonable performance by the services sector, real Gross Domestic Product (GDP) rose by 5.1 percent. This growth was not only stronger than the 3.4 percent recorded during FY02, but was also a little higher than the target for the year (see Table 2.1).

The improved performance by agriculture during FY03 hinged primarily on a sharp jump in the productivity of important crops, due to improved water availability and increased use of other agri-inputs. The stronger harvests more than compensated for a relatively subdued performance by the livestock sub-sector, pulling up the overall growth in the agricultural sector.

The agriculture sector performance was complemented by the continued strong growth in industry, which was contributed largely by a spectacular performance of large scale manufacturing (LSM). The latter, in turn, stemmed from a surge in aggregate demand, driven by exceptionally strong exports as well as rising domestic demand. In particular, FY03 saw a phenomenal growth in the production of durables, as well as construction and engineering-related products, which largely benefited from increased availability of cheap consumer finance. Similarly, higher export demand led to higher output in textiles industry. The allied industries such as paper & paperboard, industrial chemicals and tyres & tubes, etc., followed the trends of production in the major industries. The contribution to industry by LSM was supported by strong growth in mining & quarrying and construction, which offset the negative growth in electricity & gas distribution.

The revival in the commodity-producing sector, with an impressive 4.8 percent growth,  was also reflected in the services sector, and particularly in wholesale & retail trade and transport, storage & communication. In fact, historically, the performance of wholesale & retail trade in particular, has been strongly correlated with that in the commodity producing sectors, and FY03 was no exception (see Figure 2.1).

 

The acceleration recorded in wholesale & retail trade and transport, storage and communication (which together account for almost 50 percent of the services sector), more than offset a sharp decline recorded in finance & insurance, helping record a robust 5.3 percent growth in the overall services sector during FY03.

 

Table 2.1: Sector-wise Growth Rates and Shares

An overview of the sectoral contribution to the real GDP growth indicates that, despite acceleration in the commodity-producing sector, the role of the services sector remained dominant in FY03, with over half of the growth in GDP during the year coming from this segment of the economy (see Figure 2.2). Not surprisingly, therefore, the share of services in overall GDP increased marginally, rising from 50.6 percent of GDP in FY02, to 50.7 percent of GDP in FY03.

Table 2.2: Value Added Growth and Shares