GDP numbers: A manufacturing blow; but are investments turning the corner?

GVA grew 5.6% in Apr-Jun, but this is 2 percentage points lower than Q1 of FY17, when deceleration began

India’s GDP growth slowed to 5.7 per cent in the April-June quarter of 2017-18, against 7.9 per cent in the same quarter of 2016-17 and 6.1 per cent in the previous quarter, showed data released by the Central Statistics Office on August 31. During the same period, increase in the country's gross value added (GVA) slowed to 5.6 per cent. The quarterly deceleration in growth of India’s gross value added (GVA) at basic prices, which started to manifest itself from April-June 2016, may have taken a pause in the same quarter of 2017, but it is the number for the manufacturing sector that should make everyone sit up.

GVA at basic prices grew by 5.6 per cent in April-June 2017, clocking the same rate that was reported for the previous quarter. This number, however, was two percentage points lower than what was recorded for the April-June quarter of 2016, when the deceleration began. The two subsequent quarters consecutively showed deceleration at 6.8 per cent and 6.7 per cent. 

In contrast, the manufacturing sector GVA grew by only 1.2 per cent in April-June 2017, the lowest figure in at least the last two years. The high base effect of 10.7 per cent manufacturing growth in the same months of 2016 may have been responsible, but the sharp drop reflects weaknesses in a major segment of an economy that is expected to provide jobs and be a trigger for investments. 

The investment rate in the economy, broadly tracked by gross fixed capital formation (GFCF), suggests a mild quarterly improvement at 29.8 per cent of GDP at 2011-12 prices. In January-March 2017, GFCF was estimated at 28.5 per cent, lower than 29.4 per cent and 29.5 per cent in the previous two quarters. The mild quarterly recovery, however, is still way below the 31 per cent mark reached in the April-June months of 2016. 

A clear positive from the latest GVA numbers comes from services (trade, hotels, transport, communication and broadcasting) with the only double-digit growth of 11.1 per cent for the latest quarter, compared to 8.9 per cent in the same months in 2016. In all the past three quarters, this sector clocked growth rates of 6.5-8.3 per cent, showing that the April-June 2017 pick-up is significant. 

There is a mild recovery in the financial, real estate and professional services at 6.4 per cent, coming after 2-3 per cent growth rates recorded in the previous two quarters. Government spending captured through public administration and defence maintained a healthy rate of 9.5 per cent, which was higher than 8.5 per cent in April-June 2016, but much below the 17 per cent rate clocked in the January-March 2017 quarter.

The mining and quarrying sector continues to be a cause for concern, showing the only contraction of 0.7 per cent for the latest quarter, coming on top of a similar contraction of 0.9 per cent in the April-June months of 2016. Agriculture has expectedly returned a GVA growth rate of 2.3 per cent in April-June 2017, almost the same as it did in the same period of 2016.