Q2 GDP growth slips on weak manufacturing, investments

In a worrying development for the government, which has announced a slew of policies to attract investments including the ‘Make in India’ campaign, gross fixed capital formation (GFCE) — a barometer of investment activity —  did not register any growth in the second quarter of the fiscal. GFCE, which grew 7.2 per cent in the first quarter expanded by only 0.01 per cent in the second quarter.

The data is the last set of inputs for the RBI ahead of its monetary policy review on December 2. Finance minister Arun Jaitley had earlier said that reduction in the cost of capital by the RBI could give a “fillip to the economy”.

In a statement, the finance ministry said, “The Economic Survey 2013-14 had predicted that the growth of GDP to be in the range of 5.4 to 5.9 per cent. In the first half of the year the growth has been 5.5 per cent, which is broadly in line with the projections….”

Commenting on the data, former finance minister P Chidambaram said, “When the government rushed to take credit for the first quarter growth rate of 5.7 per cent, I had cautioned them. All the signs of a sluggish economy were there….” He suggested that the government should identify a few proposed big-ticket investments, foreign or Indian, and resolve all issues and also use the Centre’s “persuasive powers to convince the RBI Governor that a rate cut is an imperative.”

While the farm sector grew 3.2 per cent in Q2 as against 3.8 per cent in the Q1, manufacturing grew a mere 0.1 per cent as against 3.5 per cent in the first quarter. “It was expected that investment activity would take time to pick up but the flat growth is a matter of concern,” said DK Pant, chief economist, India Ratings, warning that a cut in rates by the RBI is unlikely next week.

Industry chambers once again called for a rate cut. CII said, “The RBI should review its status quoist approach….”