 "Q2 GDP growth at 4.8% suggests economy bottoming out")
The Indian economy may have bottomed out, if the 4.8% GDP growth in the July to September quarter is an indication. While this is marginally ahead of consensus estimates (4.6%), it needn't be interpreted as a recovery yet because services and industry are still struggling.
This quarter's growth has largely been driven largely by a pick-up in agriculture (4.6%), financial services (10%) and industry (2.4%).
Government spending has declined by one% during the quarter and going forward this will continue to decline as fiscal prudence will drive spending cuts.
However, a more sustained growth uptick is only likely in the July-September 2014 quarter, once political stability has been established and export growth stabilises at higher levels. The Q2 GDP growth may have come in higher than Q1's 4.4% due to a pick-up in the primary sector, but this cannot be viewed as a recovery.
While a spike in agriculture was largely expected, the growth in finance was a surprise, which grew at 10%. Finance and insurance growth is a positive sign as the segment has an 18% share in overall GDP. Credit growth improved in Q2, and economists expect it to sustain in the coming quarters.
A good monsoon and a marginal pick-up in mining and construction helped improve the overall headline figure, but two of the biggest components of GDP continue to struggle. Economic growth is expected to continue to languish between 4.5-5% for the next few quarters.
The biggest shock has come from the services segment. Growth in the service sector, which accounts for 60% of GDP, fell 170 basis to 5.9%. The service sector growth fell to below 6% levels last in 2001. In the new series (2004-05), services growth has never fallen below six%, say Tirthankar Patnaik and Prerna Singhvi of Religare Capital Markets. This is a worrying sign.
Industry growth too remained well below the potential at 2.4%. Going by the current trend, economists expect the primary sector to continue to report recovery but it would not drive overall growth. Going by this, economists do not expect a sustainable recovery till the third quarter of calendar 2014.
Bhupali Gursale of Angel Broking expects real GDP growth during FY2014 as a whole to range between 4.5-5%, owing to near-term challenges in the macro environment mainly from subdued domestic demand, fiscal constraints and the muted investment outlook.
This quarter's growth has largely been driven largely by a pick-up in agriculture (4.6%), financial services (10%) and industry (2.4%).
Government spending has declined by one% during the quarter and going forward this will continue to decline as fiscal prudence will drive spending cuts.
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Compared to the 4.4% seen in the April to June quarter, the second quarter numbers may be better, but this recovery is not broad based. Nomura's India economist Sonal Varma says GDP growth is still bottoming out in the 4.5-5.0% range.
However, a more sustained growth uptick is only likely in the July-September 2014 quarter, once political stability has been established and export growth stabilises at higher levels. The Q2 GDP growth may have come in higher than Q1's 4.4% due to a pick-up in the primary sector, but this cannot be viewed as a recovery.
While a spike in agriculture was largely expected, the growth in finance was a surprise, which grew at 10%. Finance and insurance growth is a positive sign as the segment has an 18% share in overall GDP. Credit growth improved in Q2, and economists expect it to sustain in the coming quarters.
A good monsoon and a marginal pick-up in mining and construction helped improve the overall headline figure, but two of the biggest components of GDP continue to struggle. Economic growth is expected to continue to languish between 4.5-5% for the next few quarters.
The biggest shock has come from the services segment. Growth in the service sector, which accounts for 60% of GDP, fell 170 basis to 5.9%. The service sector growth fell to below 6% levels last in 2001. In the new series (2004-05), services growth has never fallen below six%, say Tirthankar Patnaik and Prerna Singhvi of Religare Capital Markets. This is a worrying sign.
Industry growth too remained well below the potential at 2.4%. Going by the current trend, economists expect the primary sector to continue to report recovery but it would not drive overall growth. Going by this, economists do not expect a sustainable recovery till the third quarter of calendar 2014.
Bhupali Gursale of Angel Broking expects real GDP growth during FY2014 as a whole to range between 4.5-5%, owing to near-term challenges in the macro environment mainly from subdued domestic demand, fiscal constraints and the muted investment outlook.