Q2 GDP growth misses estimates

India’s GDP growth for the quarter ended September 30 has come below the estimate of most economists at 7.3%, down from 7.6% during the same period last year.

The second-quarter GDP numbers, released on Wednesday, has baffled many with weakness on both output and demand sides. Except for agriculture, construction and public administration, there was a drop in outputs across all activities.

D K Srivastava, chief economist, EY India, said output in sectors such as manufacturing, electricity, mining, services and others show a fall in the September quarter because they are not supported by demand, which can be gauged from the sharp fall of 5.6% in gross fixed capital formation as against 3.1% in the last quarter.

“Three sectors have shown minor improvement compared to the first quarter. Otherwise, across the board there is a reduction in output, particularly in mining, manufacturing, electricity and services. Therefore, from the output side, there is a weakening. This may be reflective of the fall in demand, visible particularly in investment and stagnation of the exports (0.3%). So, it is the output side linked to the demand side. In the sense, demand has weakened, and therefore sectors, which would have been supported by demand such as manufacturing, electricity and services, are showing a fall in output,” he said.

Srivastava said in the light of such a pre-demonetization GDP figure, the outlook of 7.6% growth for the current fiscal now appears to be “considerably overestimated”.

“I would have said that 7.6% would have been more realistically 7.4% pre-demonetization, and post demonetization, we expect a further fall of 0.1-0.2 basis points (bps) to 7.1%-7.2%,” he projected.

Aditi Nayar, principal economist, Icra, said the gross value added (GVA) expansion in of 7.1% for the last quarter was marginally lower than the rating agency’s expectation (7.2%).

She said growth in agriculture at 3.3% (1.8% last quarter) was also lower than their anticipation; “A near-normal monsoon boosted agricultural growth to 3.3% in Q2 FY2017 from 2.0% in Q2 FY2016, which is nevertheless much lower than the extent of rise in kharif output projected by the First Advance Estimates of crop production”.

Nayar said the initial data for the second quarter imparted a further downside to our GDP and GVA growth forecasts of 7.5% and 7.3% for the current fiscal, which Icra had revised downward post-demonetization.

She said a sharp contraction in the subsidy outgo of the government in the quarter led to a healthy expansion of indirect taxes less subsidies, boosting gross domestic product growth above the pace of expansion.

For Anis Chakravarty, lead economist of Deloitte India, the growth print was a mixed bag with a deceleration in the estimate for gross value addition while there was some acceleration in the GDP number.

He said growth continued to be driven by consumption expenditure and higher spending by the government to aid recovery.

“That said, given the latest move to demonetize along with limited room for government spending, the outlook for the current year seems grim. Investment recovery continues to falter with gross fixed capital formation contracting for the third quarter in a row,” said Chakravarty.

He said supply numbers were slightly below expectations as services growth decelerated and manufacturing remained a laggard even as agriculture picked up on favourable weather conditions.

“Expect this year to be a year of two halves as the drive to demonetize is likely to impart a negative bias to the numbers in the near term. Overall, while the high-frequency indicators for November still aren’t available, we could witness a negative impact on full year gross domestic product of around 30-50 bps from our earlier estimate of 7.6%,” said the Deloitte economist.

On Wednesday, the government also published the percentage of fiscal deficit of the Budget estimate (BE) achieved till October at 79.3%, which was higher than the first seven months of the last fiscal.

Richa Gupta, senior economist, Deloitte India, said improved revenue receipts had partially resulted in a reduction of the fiscal deficit from the previous month while still being higher than the last year’s level.