The Indian economy grew at a healthy 7.8 per cent in the first quarter of the ongoing financial year as per data released by the National Statistical Office. Growth in the quarter was only marginally lower than the Reserve Bank of India’s most recent estimate — in the August monetary policy committee meeting, the central bank had pegged the economy to grow at 8 per cent. The services sector was the key driver of economic momentum, growing at a robust pace of 10.3 per cent. In comparison, the industrial sector (including construction) grew by just 5.5 per cent. The economic momentum, however, is expected to moderate over the coming quarters.
The disaggregated data shows that within industry, the manufacturing sector remains a source of concern. Last year, the sector had contracted in both the second and third quarter. In the fourth quarter, it had registered a turnaround, growing by 4.5 per cent. Growth in the first quarter of this year has inched only marginally upwards to 4.7 per cent. This is surprising especially considering the fall in commodity prices. The collapse in trade — merchandise exports contracted by 15 per cent in the quarter — could have dragged down the sector. The construction sector, which had seen a steady build up of momentum in the second half of last year, also witnessed a slowdown, growing by 7.9 per cent in the first quarter. In comparison, production of cement and steel rose by 12.2 per cent and 10.2 per cent respectively. On the services side, trade, hotels, transport and communication grew at a healthy pace of 9.2 per cent, as did the financial, real estate and professional services sector, growing at 12.2 per cent.
The pick-up in private consumption and the sustained growth in investment activity are encouraging signs. After a subdued growth of just 2.5 per cent in the sector half of last year, private consumption picked up pace in the just ended quarter, growing by 6 per cent. Investment activity continued its healthy momentum, growing by 8 per cent in the quarter. It had grown by 8.5 per cent in the second half of last year. However, from here on, the economic momentum is expected to gradually slow down for several reasons. For one, if high inflation persists, it could curb discretionary household spending. Further, a below normal monsoon could impact agriculture and thus rural demand. Moreover, the full effects of tighter global and domestic monetary policy are still working their way through the system. The RBI expects the pace of expansion to slow down to 6.5 per cent in the second quarter (July-September), and thereafter to 6 per cent in the third quarter and 5.7 per cent in the fourth quarter.
