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GDP grows 5.3% in Q2 as services, mining hold fort

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The Indian economy grew 5.3% during the July-September quarter, marginally better than market expectations of 5.1%. The improvement in the gross domestic product (GDP) was largely due to growth in services, mining, power and construction activities.

The growth was offset by marked decelerations in manufacturing, agriculture and financial services.

According to the data released by the Central Statistics Office, the GDP growth in the second quarter was higher when compared with 5.2% growth of the same period in the previous fiscal.

Manufacturing sector was a major dampener with a growth of 0.1% during the second quarter as against the 1.3% registered in the same period of the previous year.

"Even though the services sector held the GDP numbers up this quarter, the manufacturing number is a strong reminder that reforms are yet to begin," said Anis Chakravorty, senior director at Deloitte.

"The concerns on fiscal deficit target (of 4.1% of GDP) have decreased on expectations of the government, which in turn will help GDP, but strong reforms are needed on the land acquisition, goods and services taxation front," he said.

The community, social and personal services sector grew 9.6% during the period as against 3.6% of the comparable period of FY2014. In the first half of the current fiscal (April-September), the segment grew 9.4% as against the 6.8% of the previous year's first half.

Industry leaders expressed satisfaction with the GDP figures but most said the falling crude favours India the most amongst other emerging economies. Brent crude slightly inched upward Friday to $73.21 from $72.5 a barrel, but price rates was still considered low and are seen reducing import bills substantially. Government-owned oil companies will reap rich dividends for the government and this would lower the fiscal deficit besides reducing subsidy burden on the exchequer on LPG and kerosene, industry watchers said after the GDP figures were released.

Mining was up by 1.9% in the July-September period as against an almost flat output during the same period of the earlier year. The first half year growth was 2% as against the negative 2% seen in the year-ago period.
However, the investment and consumption cycles remain at their lows and most bankers and economists said they were expecting the government to incentivise investments in the forthcoming budget in February-March 2015.

"Till the investment cycle restarts, GDP will remain somewhat low. The trigger will come after the budget and relation reforms and resolutions, especially on the issues related to coal blocks," said Vimal Bhandari, CEO and MD at Indostar Capital Finance, an NBFC.

The construction industry has been witnessing some improvement. The sector expanded 4.6% during the second quarter of this fiscal versus the 4.4% of the same quarter a year ago. For the April-September period the growth was 4.7% compared with the FY14's first half growth of 2.7%.

Electricity, gas and water supply segment grew 8.7% versus 7.8%, and for the first half the growth was up by 9.5% as against 5.8% of the comparable period of the previous year.

Farm sector decelerated from 5% during the second quarter of FY14 to 3.2% in the second quarter of current fiscal. The sector, that includes agriculture, forestry and fishing, registered 3.5% growth during the first half, April to September, of this year as against 4.5% during the same period of the previous year.

Financial services sector grew 9.5 % versus 12.1% in July-September quarters of current and previous fiscal years, respectively. During April-September period of this year it registered a growth of 10% (12.5% previous first half).

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