Led by strong industrial activity and a better-than-expected agricultural performance, the economy grew at a rate of 5.7 per cent in the quarter ended June, its fastest pace in two-and-a-half years, according to government data released on Friday.
GDP growth was 4.7 per cent in the corresponding quarter a year ago. Economic growth has been largely subdued marked by sub-5 per cent growth for the last two fiscals, with growth during the fourth quarter of last fiscal (January-March 2014) coming in at 4.6 per cent.
According to latest data released for the June quarter by the Central Statistics Office (CSO), manufacturing output was up 3.5 per cent in the first quarter this fiscal as against a contraction of 1.2 per cent a year ago, helped largely by the sharp revival in construction activity that expanded by a robust 4.8 per cent (1.1 per cent).
Farm output was up by a higher-than-expected 3.8 per cent in the June quarter over a 4 per cent surge a year ago. Electricity generation grew 10.2 per cent compared with 3.8 per cent during the same period.
While the optimism on the outlook for the economy has also been reflected in recent government statements, with Finance Secretary Arvind Mayaram earlier this month pegging GDP growth at 5.8 per cent in the current fiscal, analysts have flagged concerns about some of the abnormal factors that boosted GDP growth in the first quarter.
The factors that are unlikely to sustain in the ongoing quarter include the temporary pickup in activity in construction following low rainfall in June 2014 and a favourable base effect for sub-sectors such as manufacturing and electricity that are widely expected to slow down in the coming quarters, thanks to the subdued monsoon rainfall. The ongoing coal shortages and lower hydel generation are likely to reflect in the electricity generation estimates for the coming quarters, while farm output could also take a hit on account of the delayed kharif sowing.
According to the latest data, among the services sectors, financial services showed a sharp deceleration along with community services, which is representative of government expenditure, even as services such as hospitality and communication picked up moderately.
Aditi Nayar, Sr Economist, ICRA said, “The pace of resolution of various structural issues, simplification of business and taxation rules and fast-tracking of approvals would crucially impact the strength and sustainability of a capex revival in India.”
Rating agency Moody’s had on Wednesday said that the Indian economy is in the “early stages” of a “slow cyclical upturn”. The Reserve Bank of India in its monetary policy statement on August 5 had said prospects for reinvigoration of growth have improved modestly. “If the recent pick-up in industrial activity is sustained in an environment conducive to the revival of investment and unlocking of stalled projects, with ongoing fiscal consolidation releasing resources for private enterprise, external demand picking up and international crude prices stabilising, the central estimate of real GDP growth of 5.5 per cent within a likely range of 5 per cent to 6 per cent that was set out in the April projection for 2014-15 can be sustained,” it said.
However, it cautioned that if risks relating to the global recovery, the monsoon and geo-political tensions intensify, the balance of risks could tilt to the downside.
During the April-June quarter, the Chinese economy grew marginally higher at 7.5 per cent from an 18-month low of 7.4 per cent in the previous quarter, aided by a government stimulus. The US economy also grew at higher than expected rate of 4.2 per cent in the June quarter compared with a contraction of 2.1 per cent in the March quarter, driven by more business spending on new equipment and stronger household spending.
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