NEW DELHI: India's economic heartbeat, also known as the gross domestic product (GDP), printed at 7.1 per cent in the second quarter of FY19, 110 basis points (bps) lower than the fairytale 8.2 per cent seen in the first quarter, but 80 bps higher than the previous year’s 6.3 per cent.
Sequentially, sectoral growth paints a faint picture, but an annual comparison — which is the norm —indicates that the world’s fastest growing economy is on course to outrun its erstwhile colonial ruler UK next March.
Key indicators like agriculture, manufacturing, construction, and financial services have all reported lower second quarter (Q2) growth over the first quarter (Q1), but fared better than the previous year. It is because Q1 had a strong base effect since growth in the comparable year stood low.
That said, sectors such as mining and quarrying were dampeners having registered a decline in the second quarter, both sequentially and annually, perhaps due to rising energy prices and input costs.
Growth will likely slim down in the next two quarters, as lower government spending, muted consumption, oscillating rupee and the ongoing liquidity crisis threaten to pour cold water on the 7.4 per cent growth hopes for FY19. Much could also depend on the government’s battle with its unreliable boyfriend — that is global crude prices.
Experts reckon that an acute slowdown in demand, rural and agrarian distress are visible and so is the need for growth-boosting measures, but the government’s hands are tied, having dug deeper into its pockets, so much that its full-year fiscal deficit target was breached in just six months.
Inflation crashed amid falling food prices, but it’s unclear if RBI will take an embarrassing about-turn on rate cuts, the lack of which could hurt investments and consumption. On the expenditure side, private consumption, like cars and washing machines, remained subdued, indicating that a broad-based revival has an extra mile to go. Much of the spending was borne by the government, which probably explains the fiscal deficit target breach.
Typically, during election years, the investment cycle takes a pause, and governments tend to spend, but
considering lower-than-anticipated tax revenue, the growth party will probably miss its lavish host until next year.
FinMin blames higher oil prices, weak rupee
While Economic Affairs Secretary S C Garg termed the moderate GDP growth ‘disappointing’, the finance ministry blamed adverse global conditions. “This quarter faced the challenge of higher oil prices resulting in much higher import bill and the weakening of the rupee,” it said. Garg had tweeted, “GDP growth at 7.1 per cent seems disappointing. Manufacturing growth at 7.4 per cent and agriculture at 3.8per cent is steady. Construction at 6.8 per cent and mining at -2.4 per cent reflect monsoon months deceleration.”
