 "At 5.3%, GDP growth beats estimates")
As such, growth for the first half of this financial year stands at 5.5 per cent, compared with 4.9 per cent for the corresponding period last year.
In a statement, the finance ministry said, “Growth in the second quarter of this financial year has broadly been on expected lines…In view of the lower than expected monsoon this year vis-à-vis a good monsoon in 2013-14, lower growth in the agriculture sector was expected...the overall and sectoral growth rates in the second quarter are lower than in the first, except for the services sector, where the growth has been little higher than in the first.”
“For the manufacturing sector, there hasn’t been a broad uptick in consumption and demand for the September quarter, except in the automobiles sector,” said Aditi Nayar, chief economist, Icra. Though growth during the September quarter this year exceeded the estimates of most analysts, it is likely to increase the clamour for an interest rate cut by the Reserve Bank of India (RBI) at its next bi-monthly monetary policy review on Tuesday.
The quarter-on-quarter slowdown in economic growth comes amid Consumer Price Index-based inflation for October falling to a historic low, as well as low industrial output. It is expected Finance Minister Arun Jaitley will impress upon RBI Governor Raghuram Rajan the need to cut rates, at a customary pre-monetary policy meeting.
“Slowing government spending and exports during the quarter ended September contributed to a renewed slowdown in economic activity. Hopefully, RBI will take a cue from this in its coming policy review,” said Debopam Chaudhuri, chief economist, ZyFin Research. “To record healthy growth of more than five per cent in FY15, the economy will have to see continued improvement, particularly in industries and services, given that agricultural growth is already factored in to be lower this year on account of the disrupted monsoon. The government will not be able to provide a push due to constraints on the fiscal deficit front,” Madan Sabnavis, chief economist, CARE Ratings, said in a note.
The government’s fiscal deficit for the April-October period touched 89.6 per cent of the FY15 Budget estimate of Rs 5.31 lakh crore, primarily on account of lower tax revenue collections.
Reacting to the data on growth, former finance minister P Chidambaram said, “No one should be surprised that the second quarter of 2014-15 has returned a growth rate of 5.3 per cent. When the government rushed to take credit for the first quarter’s growth rate of 5.7 per cent, I had cautioned them. All the signs of a sluggish economy were there — low credit growth, a limping manufacturing sector, no new major investments, stalled projects, infrastructure bottlenecks, etc….The government seems to have been seduced by the rise in the stock market.” He recommended reiterating the goal of containing the fiscal deficit at 4.1 per cent this year; unblocking stalled projects; identify a few big-ticket investments; and convincing RBI that a rate cut was an imperative.
Further, export growth has slowed considerably, possibly on account of weak growth in the euro zone and a slowdown in China, which together account for about 30 per cent of India’s exports. The agriculture sector, which accounts for 14 percent of India’s GDP, grew 3.2 per cent in the quarter ended September, compared with 3.8 per cent in previous quarter. Economists expect for the entire financial year, the sector will grow one per cent due to a high base — it grew 4.7 per cent in 2013-14 —, and the adverse impact of a deficit monsoon. Earlier, the Ministry of Agriculture had estimated a low kharif output for cereals, pulses and oilseeds.
In the services sector, the finance, insurance, real estate and business services segment grew 9.5 per cent during the September quarter this year, against 10.4 per cent in the quarter ended June. The community, social & personal services segment grew 9.6 per cent, against 9.1 per cent in the previous quarter. With the government expected to slash expenditure in the coming months to meet its fiscal deficit target, growth in this sector is expected to slow considerably, which might affect overall economic growth for FY15.
“Data on expenditure reveal concerns, particularly stagnation in investment activity and contraction in exports. Given the low rise in the government’s tax collections and the expenditure curtailment to ensure the fiscal target is met could dampen GDP growth in the remainder of this financial year,” said Icra’s Nayar.
According to the data released on Friday, at 2004-05 prices, government final consumption expenditure stood at 10.6 per cent of GDP in the September quarter, compared with 12.4 per cent in the previous quarter. At current prices, it stood at 11.7 per cent, compared with 13.4 percent in the June quarter. Gross fixed capital formation, an indicator of investment, slowed to 28.3 per cent from 28.6 per cent in the June quarter and 29.9 per cent in the September quarter of 2013-14.
PRESSURE POINTS
- Manufacturing growth down to 0.1% from 1.3% in the year-ago period
- Private consumption as percentage of GDP almost flat compared with Q2FY14 levels, at 57.8%
- Agriculture growth slowed to 3.2% from 3.8% in the July quarter and 5% for the year-ago period
- Gross fixed capital formation as percentage of GDP at 28.3%, down from 29.9% for corresponding period in FY14
LOOKING AHEAD
- Slide in September quarter economic growth creates pressure for FY15. Official estimates stand at 5.4-5.9%
- GDP data create pressure on RBI for rate cuts ahead of monetary policy meeting on Dec 2
- October CPI inflation at historic low; WPI inflation at 5-year low
- April-October fiscal deficit at 89.6% of FY15 BE; increases possibility of deep spending cuts