However, analysts fear third quarter will be down overall.
Growth in agriculture in the second quarter of the financial year despite the worst drought in 17 years has been a major surprise for most analysts.
They had given conservative GDP forecasts, as they expected agricultural GDP to be negative for second quarter. However, the sector saw marginal growth of 0.9 per cent and, backed by good growth in mining and manufacturing, overall gross domestic product grew by 7.9 per cent.
“While trends in industry (8.3 per cent) and services (9.3 per cent) were broadly in line, agriculture surprised on the upside, with a positive reading of 0.9 per cent. Although we had factored that most of the 17.9 per cent production decline in the summer crop would take place in October-December 2009, similar to the 2002 drought, we had expected some impact in the second quarter as well,” observed economists Rohini Malkani and Anushka Shah in a report by Citigroup.
Mining and quarrying grew by a significant 9.5 per cent in the quarter ended September, against a marginal growth of 3.7 per cent in the corresponding period in 2008. Natural gas production in the Krishna-Godavari basin operated by Reliance Industries Ltd has been the major source of growth for the sector. Manufacturing, which grew by 9.2 per cent in Q2 as compared to a meagre growth of 5.1 per cent in Q2 of 2008-09, was primarily driven by increased government spending and augmenting of investments in the sector.
“The growth in mining is driven primarily by the KG gas production, which was nil last year. The growth in manufacturing is due to the increased unlocking of investments in the sector. Therefore, recovery is in place,” said Pronab Sen, Chief Statistician for the government and secretary of the ministry of statistics and programme implementation.
The growth in manufacturing was expected with the double-digit growth of 10.4 per cent in industrial output as measured by the index of industrial production (IIP) in August. The IIP had averaged 9.1 per cent for Q2 and so, a high growth rate was anticipated.
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“The growth in manufacturing is primarily driven by consumer durables and the auto sector. It was more or less anticipated, given the high IIP numbers in the second quarter,” said D K Joshi, principal economist with research and ratings agency Crisil.
‘Community, social and personal services’ and ‘financial, real estate and business services’ grew by 12.7 per cent and 7.7 per cent in Q2, respectively, against 9 per cent and 6.4 per cent in the same period last year. Trade, hotels, transport and communication grew by 8.5 per cent in Q2, a lower growth compared to 12.2 per cent in Q2 of FY2009. Construction and electricity grew by 6.5 per cent and 7.4 per cent, respectively, during the quarter under consideration.
Economists are, however, wary about growth prospects and state the third quarter ending December will be the deciding factor for policy. The effects of drought are expected to be captured in its entirety then, while growth in manufacturing is also expected to moderate, as IIP figures have stabilised in recent months.
“The second quarter is not a surprise. The growth in agriculture will be negative in the third quarter and that will pull the growth rate for the quarter down. Therefore, stimulus decisions should be taken after that,” added Sen. Joshi added: “Along with more pronounced effects of drought in the agriculture growth rate, growth in manufacturing will also moderate in the third quarter.”