The country’s economic growth slowed to a three-quarter low of 7.1 per cent in July-September 2018-19 from almost a four-year high of 8.2 per cent in April-June.
This was despite gross fixed capital formation, denoting investment activities, growing by double digits for the third straight quarter.
Growth in gross value added moderated to a three-quarter low of 6.9 per cent in Q2, pulled down by manufacturing, mining and agriculture, among others. The financial services sector saw a subdued growth rate.
Almost none of the major segments in gross value added (GVA), except electricity, which has a low share in GDP, and government-supported services, showed a rise in growth. Besides, the trade, hotel and communication segment rose only moderately higher in Q2 compared to that in Q1.
ALSO READ: GDP growth slows to 3-quarter low of 7.1% in Q2, still ahead of China
GDP growth was below the Reserve Bank of India’s (RBI’s) expectations of 7.4 per cent. In its monetary policy report, the RBI had projected GDP growth to be 7.1 per cent in Q3 and 6.9 per cent in Q4. Along with a benign inflation rate, this will prompt the Monetary Policy Committee to not hike the policy rate in its review next week, say economists. This is the last crucial macroeconomic data before the policy.
GDP data: Muted growth in major segments in GVA; economists not optimistic Economic Affairs Secretary Subhash Garg said GDP growth in second quarter seemed disappointing. The finance ministry's statement later said, "This quarter also faced the challenge of higher oil prices, resulting in a much higher import bill and the weakening of the rupee.
The Indian economy is on track to maintain a high growth rate in the current global environment." The sequential slowdown in GDP growth in Q2, the extent of which is largely in line with our expectations, confirms that the expansion in excess of 8 per cent recorded in Q1 was an aberration led by base effects, noted Aditi Nayar, principal economist at ICRA.
However, India continued to be the fastest-growing large economy with China delivering 6.5 per cent growth in July-September 2018.
In the first half of FY19, the economy grew at 7.6 per cent, up from 6 per cent last year. “First half GDP growth is quite robust and healthy. Still, the highest growth rate in the world,” noted Garg. Economists don't agree with the finance ministry's optimism that the economy is on track. SBI Chief Economist Soumya Kanti Ghosh said, “Signs are not rosy, and we expect GDP growth to slip below 7 per cent in H2FY19.”
ALSO READ: What next after mining, manufacturing pull down GDP data?
CRISIL lowered its projections for the economic growth 10 basis points to 7.4 per cent for the current financial year from 7.5 per cent estimated earlier. CRISIL Chief Economist D K Joshi said slowdown in private consumption dragged GDP growth down to 7.1 per cent in Q2. Growth in gross value added moderated to a three-quarter low of 6.9 per cent in Q2.
Growth in the second quarter was driven by public administration, defence & other services, which largely connote government spending. The sector grew by 10.9 per cent in Q2, up from 9.9 per cent in Q1, contributing 1.5 percentage points to growth in Q2FY19. However, manufacturing dipped to 7.4 per cent from 13.5 per cent in the previous quarter.
“The sharp slowdown in GVA growth of manufacturing in Q2 relative to the previous quarter is in line with the quarter-on-quarter decline in the aggregate EBITDA margins of a wide section of corporates, led by a rise in input and energy costs and rupee depreciation,” noted Nayar. Construction grew at a slower pace of 7.8 per cent in Q2, down from 8.7 per cent in the previous quarter, reflecting the seasonal impact.
“Typically construction slows during the July-September quarter due to monsoon and picks up thereafter,” noted Devendra Pant, chief economist, India Ratings and Research (Ind-Ra).
GDP data: Muted growth in major segments in GVA; economists not optimistic The mining sector’s woes continued with the sector contracting by 2.4 per cent in Q2. Agricultural growth slowed to 3.8 per cent in Q2 from 5.3 per cent in Q1.
Within the services sector, trade, hotels, transport and communication remained range-bound, growing at 6.8 per cent in Q2, while financial, real estate & professional services dipped marginally to 6.3 per cent in Q2 from 6.5 per cent earlier.
On the expenditure side, investment remained healthy with gross fixed capital formation (GFCF) growing at 12.5 per cent in Q2, up from 10 per cent in the previous quarter. Its share in GDP (at current prices) has gone up to 29.2 per cent in Q2, the highest since Q1FY17. It is possible that increase in capital spending on road, affordable housing and railways pushed up growth, noted analysts.
ALSO READ: GDP numbers disappoint; 7.5% full-yr target possible if govt tempo keeps up
However, private consumption expenditure slowed to 7 per cent in Q2, down from 8.6 per cent in the previous quarter.
“While moderation in consumption growth in Q2 relative to the previous quarter was led by the base effect, prevailing disinflation in food prices has cast concerns on the sustainability of the strength of rural demand in the near term,” noted Nayar.
“Whether market prices rise closer to the revised MSPs for various crops would crucially affect rural sentiment and demand. While commentary by various corporates related to their Q2 earnings suggested that urban sentiment was mixed, the reduction in fuel prices may boost consumption,” she added. Some economists say the slowdown in growth, coupled with subdued retail inflation, could prevent the MPC from hiking rates in its monetary policy review next week.
ALSO READ: GDP numbers indicate India's farmers are getting little for what they sow
“Ind-Ra believes the FY19 may still end up with GDP growth of 7.3 per cent and the RBI may get the much-needed elbow room to keep the policy rate unchanged in the forthcoming 5th bi monthly policy review on December 5. If the current trend of growth inflation mix continues, a rate hike in the current fiscal year is ruled out,” noted Pant.
This was despite gross fixed capital formation, denoting investment activities, growing by double digits for the third straight quarter.
Growth in gross value added moderated to a three-quarter low of 6.9 per cent in Q2, pulled down by manufacturing, mining and agriculture, among others. The financial services sector saw a subdued growth rate.
Almost none of the major segments in gross value added (GVA), except electricity, which has a low share in GDP, and government-supported services, showed a rise in growth. Besides, the trade, hotel and communication segment rose only moderately higher in Q2 compared to that in Q1.
ALSO READ: GDP growth slows to 3-quarter low of 7.1% in Q2, still ahead of China
GDP growth was below the Reserve Bank of India’s (RBI’s) expectations of 7.4 per cent. In its monetary policy report, the RBI had projected GDP growth to be 7.1 per cent in Q3 and 6.9 per cent in Q4. Along with a benign inflation rate, this will prompt the Monetary Policy Committee to not hike the policy rate in its review next week, say economists. This is the last crucial macroeconomic data before the policy.
GDP data: Muted growth in major segments in GVA; economists not optimistic Economic Affairs Secretary Subhash Garg said GDP growth in second quarter seemed disappointing. The finance ministry's statement later said, "This quarter also faced the challenge of higher oil prices, resulting in a much higher import bill and the weakening of the rupee.
The Indian economy is on track to maintain a high growth rate in the current global environment." The sequential slowdown in GDP growth in Q2, the extent of which is largely in line with our expectations, confirms that the expansion in excess of 8 per cent recorded in Q1 was an aberration led by base effects, noted Aditi Nayar, principal economist at ICRA.
However, India continued to be the fastest-growing large economy with China delivering 6.5 per cent growth in July-September 2018.
In the first half of FY19, the economy grew at 7.6 per cent, up from 6 per cent last year. “First half GDP growth is quite robust and healthy. Still, the highest growth rate in the world,” noted Garg. Economists don't agree with the finance ministry's optimism that the economy is on track. SBI Chief Economist Soumya Kanti Ghosh said, “Signs are not rosy, and we expect GDP growth to slip below 7 per cent in H2FY19.”
ALSO READ: What next after mining, manufacturing pull down GDP data?
CRISIL lowered its projections for the economic growth 10 basis points to 7.4 per cent for the current financial year from 7.5 per cent estimated earlier. CRISIL Chief Economist D K Joshi said slowdown in private consumption dragged GDP growth down to 7.1 per cent in Q2. Growth in gross value added moderated to a three-quarter low of 6.9 per cent in Q2.
Growth in the second quarter was driven by public administration, defence & other services, which largely connote government spending. The sector grew by 10.9 per cent in Q2, up from 9.9 per cent in Q1, contributing 1.5 percentage points to growth in Q2FY19. However, manufacturing dipped to 7.4 per cent from 13.5 per cent in the previous quarter.
“The sharp slowdown in GVA growth of manufacturing in Q2 relative to the previous quarter is in line with the quarter-on-quarter decline in the aggregate EBITDA margins of a wide section of corporates, led by a rise in input and energy costs and rupee depreciation,” noted Nayar. Construction grew at a slower pace of 7.8 per cent in Q2, down from 8.7 per cent in the previous quarter, reflecting the seasonal impact.
“Typically construction slows during the July-September quarter due to monsoon and picks up thereafter,” noted Devendra Pant, chief economist, India Ratings and Research (Ind-Ra).
GDP data: Muted growth in major segments in GVA; economists not optimistic The mining sector’s woes continued with the sector contracting by 2.4 per cent in Q2. Agricultural growth slowed to 3.8 per cent in Q2 from 5.3 per cent in Q1.
Within the services sector, trade, hotels, transport and communication remained range-bound, growing at 6.8 per cent in Q2, while financial, real estate & professional services dipped marginally to 6.3 per cent in Q2 from 6.5 per cent earlier.
On the expenditure side, investment remained healthy with gross fixed capital formation (GFCF) growing at 12.5 per cent in Q2, up from 10 per cent in the previous quarter. Its share in GDP (at current prices) has gone up to 29.2 per cent in Q2, the highest since Q1FY17. It is possible that increase in capital spending on road, affordable housing and railways pushed up growth, noted analysts.
ALSO READ: GDP numbers disappoint; 7.5% full-yr target possible if govt tempo keeps up
However, private consumption expenditure slowed to 7 per cent in Q2, down from 8.6 per cent in the previous quarter.
“While moderation in consumption growth in Q2 relative to the previous quarter was led by the base effect, prevailing disinflation in food prices has cast concerns on the sustainability of the strength of rural demand in the near term,” noted Nayar.
“Whether market prices rise closer to the revised MSPs for various crops would crucially affect rural sentiment and demand. While commentary by various corporates related to their Q2 earnings suggested that urban sentiment was mixed, the reduction in fuel prices may boost consumption,” she added. Some economists say the slowdown in growth, coupled with subdued retail inflation, could prevent the MPC from hiking rates in its monetary policy review next week.
ALSO READ: GDP numbers indicate India's farmers are getting little for what they sow
“Ind-Ra believes the FY19 may still end up with GDP growth of 7.3 per cent and the RBI may get the much-needed elbow room to keep the policy rate unchanged in the forthcoming 5th bi monthly policy review on December 5. If the current trend of growth inflation mix continues, a rate hike in the current fiscal year is ruled out,” noted Pant.
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