When the market started and I was busy in listening the CNBC TV.Suddenly around 11 am Udayan Mukherjee of CNBC TV jumped of his seat and shocked to find the GDP numbers of India.Within few minutes india was into a roller coaster ride. July-Sept GDP up 7.9%. Economist and all market speculators are having their eyes coming out of socket. Before I get into further analysis just a quick look into the break up figures.
 The construction sector grew at 6.5% while financing, insurance, real estate growth came in at 7.7%.
 The manufacturing sector grew at 9.2 % in the second quarter vs 5.1% a year earlier.
 The mining space has posted the highest growth at 9.5% as compared to 3.7% YoY
If we look into the historical GDP number of India we even get more shocked. Since in the history of Indian economy very often find GDP around the growth of 7.9% GDP.
The trend for India’s GDP growth rate are given below:

  • 1960-1980 - 3.5%

  • 1980-1990 - 5.4%

  • 1990-2000 - 4.4%

  • 2000-2008 - 6.4%

Few of the prime reasons behind 7.9% GDP numbers are :
 India has taken various policy measures to buffer the economy. Repo rate, SLR and CRR have already been slashed. CRR can be brought down to about three per cent (RBI’s medium term goal). All these measures in turn would infuse liquidity into the economy.
 GDP rate have also improved fabulously because of the high commodity prices which supported the agri sector.
 Indians have something to do with agriculture and inflation will soon prove a boon to the rural public. Their profits are going to soar. This rural boom will kick start the next round of self enhancing growth cycle.
 The growth rate of Indian GDP fell from 7.35% in 2008-09 to 5.36% till the end of 3rd quarter of the 2009-10.
 The cumulative FDI Equity inflows (from August 1991 – August 2009) stood at Rs. 5,20,589 crore.
 Budgetary support for National Highway Development Programme (NHDP) has gone by 23% on y-o-y basis for 2009-10.
 Expenses for the Commonwealth Games 2010, went up from Rs.2,112 crore in Interim Budget to Rs.3,472 crore for 2009-10 fiscal.
 Allocation to railways have gone up from Rs.10,800 crore in interim budget toRs.15,800 crore for FY 2009-10.
 Allocation under National Rural Health Mission (NRHM) has gone up by Rs.2,057 crore over Interim Budget estimate in 2009-10 of Rs.12,070 crore.
 Rs.2,113 crore has been allocated for IITs and NITs, comprising of a provision of Rs.450 crore for new upcoming IITs and NITs.
 India has weathered the global slowdown quite well because of substantial government actions. Fiscal stimulus in form of tax cuts, and spending increases on the rural sector and infrastructure has contributed to the rebound in production.
 Purchases of government bonds and lowering of repurchase rate by the central bank has been helping the banking sector. Adding to that a quite good performance of the agricultural sector and India looked like it had been set for a sustainable recovery.
 Fiscal pay outs such as Sixth Pay Commission award lower service tax excise duty and employment guarantee scheme have put Rs 1,20,000 crore (2.5% of GDP) into the system in turn boosting consumption demand.
 The Indian banking system is very much quite safe and sound with capital adequacy ratio of most banks at 12% against the mandatory nine per cent. The money multiplier will have to rise to meet growing demand for funds, subject to additional capital with banks.
 NPA are under stringent control of the RBI.
 Moreover housing/realty exposure of banks is less than 14% of the total loans and most of these loans are well collaterised.
 The markets are booming, the stock exchange is bullish, and the rupee-dollar rates have crossed new frontiers.
 And last but no the least India have shrugged off the poor monsoon affects on the agri sector.

So all the above are the key contributors behind astonishing GDP growth of 7.9%.Along with this it is clear that in the future Indian economy is on a roller coaster ride.The huge spending from the hands of government will boost up the consumption in the next coming quarters too. The huge spending is focused approach and not like the one in China.
Below is the Chart of historical GDP of India.

If we look into the key sector contributors of GDP growth we get historically:
Below are the contributions of different sectors in the India’s GDP for 1990-1991 –
Agriculture: - 32%
Service Sector: - 41%
Industry: - 27%
Below are the contributions of different sectors in the India’s GDP for 2005-2006-
Agriculture: - 20%
Service Sector: - 54%
Industry: - 26%

Below are the contributions of different sectors in the India’s GDP for 2007-2008-
Agriculture: - 17%
Service Sector: - 54%
Industry: - 29%

The service sector contributes more than half of India’s GDP. Earlier agriculture was the main contributor to the GDP. To improve the GDP and boost the economy, the government has taken various steps like implementation of FDI policies, SEZ’s and NRI investments.

Above is the chart of historical chart of India's inflation.
 Now RBI will have to check into inflation devil. GDP of 7.9% is bound to spook off the inflation. We are already having higher index for food prices.The CPI is already floating in the range of all time high in the history of Indian economy.  Excess flooding of money have created this euphoria. we should not be surprised if RBI takes immdeate steps to curb the rising devil. As we all know that one of the most common ways of controlling inflation by RBI is rolling back of interest rates which were given as stimulus plans. But that will not affect the long term journey of the Indian economy.To reasons behind this is.1) India has huge potential untapped as a Emerging Economy among the BRIC nations.2)The Indian economy have a high purchasing power parity then any other economy in the BRIC table.
By purchasing power parity we mean:
Using a PPP basis is arguably more useful when comparing generalized differences in living standards on the whole between nations because PPP takes into account the relative cost of living and the inflation rates of the countries, rather than using just exchange rates which may distort the real differences in income. This entry gives the gross domestic product (GDP) or value of all final goods and services produced within a nation in a given year. A nation's GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States.

The below chart shows the purchasing parity index of India in dollar terms.

 What ever happens in in Indian economy from RBI measures to any otehr measures as imposed from time to time.India remains in the top prority list of Investments.All we need is that to look into that Growth of income is important in itself, but it is as important for the resources that it brings in. These resources provide us with the means to bridge the critical gaps that remain in our development efforts.