Capex up though full recovery far away, say economists.
The country’s gross domestic product (GDP) grew 4.8% in the second quarter (Q2, July-September), up from 4.4% the previous quarter – it was 5.2% in Q2 of last fiscal – largely driven by a pick-up in agriculture and supported by private consumption. But slower growth in services and constrained government spending capped economic growth.
Overall, the GDP growth in Q2 was marginally better than the widely expected 4.6%. However, this is the fourth quarter of sub-5% growth.
“The upside to GDP was primarily driven by a significantly better agricultural growth at 4.6% (from 1.7% a year ago),” said Soumya Kanti Ghosh, economist at State Bank of India.
This is the highest growth in agricultural sector in the past nine quarters. The sector had grown by 2.7% Q1 of this fiscal. It largely reflects this year’s wet monsoon and last year’s dry monsoon producing a base effect. “As this base effect washes out, agriculture output growth will settle at a slower pace toward the end of this fiscal year,” said economists Leif Eskesen and Prithviraj Srinivas at HSBC.
Industry output was up 2.4% from 1.3% while services growth was slower at 5.9% from 7.6% a year ago.
While private consumption was up 2.2% from 1.6% last year, government spending fell by 1.1% from the growth of 10.5% in the same period.
The trend is expected to continue. “With the deficit during the first half already having reached around 80% of the full-year target, the government doesn’t have much choice,” said the HSBC economists.
Data released on Friday showed that fiscal deficit had reached 84.4% of the full year’s target in the first seven months (April-October) of this fiscal.
On the brighter side, gross capital expenditure or capex was up 2.6% from the negative growth of 1.2% witnessed in Q2 of last fiscal. “This change in the investment growth trajectory is the most important takeaway. Although it is too early to rejoice on this account, the passage of some crucial economic bills in Parliament, coupled with the clearing of some mega projects by the Cabinet Committee on Investment, appears to be finally paving the way for an investment revival,” said Devendra Pant, chief economist at India Ratings.
Also, exports grew 16.3% compared to the 1.7% decline in Q1 of this fiscal. “Some improvement in demand from advanced economies, coupled with rupee depreciation, helped Indian exports. We believe that the momentum witnessed in the exports growth will continue in the near term,” said Pant.
The rupee lost 5.44% against the dollar in Q2 of this fiscal.
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