Economic growth rebounded to 6.3 per cent in the second quarter (July to September) of 2017-18 from 5.7 per cent in the preceding quarter primarily driven by higher growth in manufacturing and businesses overcoming teething GST troubles.
This halted a five-quarter slide but the government’s monthly accounts released Thursday showed that the country’s fiscal deficit at the end of October had hit 96.1 per cent of the full-year budget estimate for 2017-18, mainly due to lower revenue collections and rise in expenditure.
Coming days after Moody’s upgrade of India’s sovereign credit for the first time in nearly 14 years, the growth buoyancy comes as a shot in the arm for the Modi government fighting off charges that demonetisation and GST launch disrupted the economy.
However, the growth rate for “agriculture, forestry and fishing” sector slowed down to 1.7 per cent from 2.3 per cent in the previous quarter and 4.1 per cent growth in the second quarter last year, data released by Central Statistics Office (CSO) showed.
The Gross Value Added or GVA growth, which serves as a more closely watched estimate for quarterly growth, increased to 6.1 per cent in July-September from 5.6 per cent in the previous quarter but fell slightly from the 6.8 per cent growth recorded in the July-September quarter last year.
The expansion in GVA in the first half of the current fiscal has been estimated at 5.8 per cent, down from 7.2 per cent last year.
As per the new methodology followed by the CSO, GDP is calculated by adding product taxes to GVA at basic prices and removing subsidies.
The construction sector recorded a GVA growth rate of 2.6 per cent in July-September, higher than 2.0 per cent in previous quarter but lower than 4.3 per cent growth recorded in the second quarter last year.
Reacting to the numbers, Finance Minister Arun Jaitley said that “the impact of demonetisation and GST is behind us.”
“(The) most significant aspect is the fact that this quarter’s positive result has been impacted significantly by the growth in manufacturing…fixed capital formation is up to 4.7 (per cent), which actually means that the investment is moving upwards. Hopefully, we should go back to higher growth rates in coming quarters,” he said.
He added, “If you look at the overall picture since May 2014, of the 13 quarters, we have clocked upwards of 7 per cent eight times, we have fallen below 6 per cent only once and that was last quarter. Therefore, if you, at all, compare this to any previous figure preceding that, this looks entirely different. But I think the fact that it marks a reversal, it’s enabled essentially by manufacturing and that investment has moved up…— are some of the significant features as far as growth is concerned.”
Chief Statistician T C A Anant said that manufacturing growth gained support from a pickup in production after the GST rollout. “Anticipation of GST meant people were delaying production for the festive season until the GST got launched. It’s possible that anticipating the need for the festive season, most production actually went into a still and inventory restocking may happen later. My reading of the corporate data suggests that this is principally for consumption and sales, inventory accumulation effects may persist in the third quarter as well,” Anant said.
Congress leader and former Finance Minister P Chidambaram said, “This a pause in the declining trend of the last five quarters. But we cannot say now whether this will mark an upward trend in the growth rate. We should wait for the growth rates over the next 3-4 quarters before we can reach a definite conclusion. 6.3 per cent is far below the promise of the Modi government and far below the potential of a well-managed Indian economy.”
The CSO said that the private corporate sector growth as estimated from available data of listed companies with BSE/NSE was 11.4 per cent at current prices during July-September of 2017-18.
Private corporate sector growth has a share of over 70 per cent in the manufacturing sector, while quasi-corporate and unorganised segment includes individual proprietorships and partnerships and khadi and village industries, comprising a share of around 20 per cent in the manufacturing sector, it said.
Only three of eight sectors — trade, hotel, transport, communication; electricity, gas, water supply; mining and quarrying — showed a pickup in GVA growth in July-September from the same period last year.
The GVA for “trade, hotel, transport, communication” sector grew at 9.9 per cent, up from 7.7 per cent last year. GVA growth for “electricity, gas, water supply” sector increased to 7.6 per cent in July-September from 5.1 per cent last year. GVA growth for “mining and quarrying” rose to 5.5 per cent from (-) 1.3 per cent in the corresponding period last year, data showed.
The GVA for “financial, insurance, real estate and professional services’” sector grew at 5.7 per cent, down from 7.0 per cent last year. GVA growth for the construction sector declined to 2.6 per cent in July-September from 4.3 per cent last year. Gross Fixed Capital Formation, an indicator for private investment, grew at 4.7 per cent at constant prices during July-September as against 3 per cent during the same period last year.
Industry players said that the growth figures reflect restocking by companies and are a step towards recovery.
Said Chandrajit Banerjee, Director General, CII: “What is encouraging is that manufacturing has emerged as a key driver of growth indicating that firms have started restocking and recovery is taking shape. Going forward, economic performance would be better in the second half as companies move to execute projects on the back of improved demand.”
FICCI President Pankaj Patel said, “After the massive destocking undertaken by companies before implementation of GST, production lines are once again coming back on track.”