On Wednesday, the National Statistical Office will release the GDP estimates for the second quarter (July-September) of the ongoing financial year. The Reserve Bank of India, in its last monetary policy committee meeting, had pegged the economy to grow at 6.3 per cent. Assessments by some private economists suggest the economy is likely to have grown a tad bit higher at 6.5 per cent. So beyond the headline numbers what are the four things to watch out for in the data?
Based on the data available so far, economists expect that the recovery in household consumption to have sustained in the second quarter as well. In the first quarter, GDP data had shown that private consumption spending was around 10 per cent higher than its pre-Covid level. Many analysts expect household spending to have increased sharply towards the end of the second quarter owing to the festive season. There are several indications to this effect. Indicators such as passenger traffic, GST e-way bills, fuel sales, cargo etc do suggest that the momentum in expenditure has been maintained.
There has been concern that private sector investments continue to remain subdued, and are yet to show signs of a broad-based pick up.
An analysis of 2,446 companies by economists at the Bank of Baroda shows that capital formation at the end of September was around 9 per cent higher than its pre-pandemic level. This implies a compounded growth rate of around 2.9 per cent. As per this analysis, only four sectors, namely, refineries, power, telecom, iron and steel accounted for most of the spending.
On the other hand, public sector capital spending appears to be growing at a healthy pace. As per ICRA, capital expenditure by the central government grew at a robust 42 per cent in the second quarter. Alongside, capital outlay of 24 state governments rose to Rs 1.1 lakh crore in the second quarter, up from Rs 60,000 crore in the first quarter. If states utilise the fiscal space available to them, then public sector capex growth is likely to remain robust in the second half of the year.
Higher investment activity is critical for the economy to move to a higher growth trajectory.
The sharp slowdown in the world economy, especially in advanced economies like the US, the UK and the Euro Zone, is a matter of concern. India’s economy had benefited from an export boom last year. However, with central banks in these advanced economies tightening financial conditions to tackle inflation, household demand in these economies is slowing down sharply. This in turn will impact India’s exports. And as imports continue to hold up, the external sector will act as a drag to growth. In fact, there is a strong consensus among economists that going ahead the main risk to the economy is from the external sector.
As per the government’s first advance estimates released on September 21, the food grain production was estimated to be 149.92 million tonnes. This is however 3.9 per cent lower than the 156.04 million tonnes last year. However, there are now some concerns among analysts that the untimely heavy rainfalls in the second quarter across north-west and central India are likely to have impacted agricultural activities. This could pose some risks to the output numbers as estimated in the first advance estimates.