NEW DELHI: Improved manufacturing sector's performance gave a lift up to the country's economy that grew 7.4 per cent for the second quarter of FY16, as against 7 per cent in the previous quarter of current fiscal. However, on a year-on-year basis, growth was slower than 8.4 per cent registered during July-September of FY15.
Though the second quarter's 7.4 per cent growth was well within analyst expectations, economists hint that the slump in growth could drag down the country's annual growth estimate. The Economic Survey 2015 pegged GDP growth at 8.1-8.5 per cent for FY16. This, now, looks difficult to achieve.
Manufacturing output rose 9.3 per cent in Q2 and financial services 9.7 per cent. Electricity and gas production rose 6.7 per cent while the construction sector expanded 2.6 per cent.
“The key surprise in the initial growth data for Q2FY16 is the uptick in growth of agriculture, forestry and fishing, belying the concerns regarding the extent of drag generated by the unfavourable monsoon on the crop sector,” said Aditi Nayar, Senior Economist, ICRA Ratings adding, “We continue to expect GDP growth to record a mild uptick to 7.4 per cent in 2015-16 from 7.3 per cent in the previous fiscal, whereas GVA growth would remain steady at 7.2 per cent.”
Among sectors, trade, hotels and transport & communication and services related to broadcasting, financial, insurance grew over 7 per cent in the September quarter. Similarly, the Gross Value Added (GVA) comprising agriculture, industry and services rose 7.4 per cent in the September quarter as against 7.1 per cent over the previous quarter. Manufacturing growth during the quarter stood at 9.3 per cent, as against 7.2 per cent in the previous quarter.
The pick-up in growth of gross fixed capital formation to a five-quarter high of 6.8 per cent, mirroring the pace of expansion of private final consumption expenditure, signals some improvement in the composition of GDP growth in Q2FY16.
“Growth is likely to be consumption-led than driven by investments. Urban demand is on the mend, as indicated by higher passenger car sales, indirect tax collections, easing financing costs and modest recovery in durables output,” noted DBS Research.
It added that investment spending, on the other hand, will be driven mainly by higher government captial expenditure, while private sector has been slow to catch-up. The stock of stalled projects climbed in the September quarter, while existing capacity is being under-utilized. This has, not surprisingly, lowered interest in green field investments, with industrial credit loan growth stagnating in single digits.