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Q2 GDP growth rate at 6.3% allows BJP to counter opposition

Q2 GDP growth rate at 6.3% allows BJP to counter opposition

GDP growth of 6.3% was still lower than 7.5% growth reported in the same period past year. However, a closer analysis reveals that achieving these numbers will not be an easy task, either.Take the manufacturing sector, which has a weight of over 15 per cent in growth measurement.

Jaitley said that the 6.3% growth in gross domestic product (GDP) in the September quarter compared to 5.7% in the June quarter of 2017-18 showed a turnaround in the trend of slowing growth witnessed in the preceding five quarters. (See charts) But what could worry policy makers is a positive correlation between high growth rates in the manufacturing sector with the rise in total GVA in the economy.

The GDP growth of 6.3% was still lower than 7.5% growth reported in the same period previous year.

On a sequential basis, India's GDP growth for Q2 of the current fiscal went up to 6.3 per cent, from 5.7 per cent reported during the first quarter of 2017-18.

Commenting on the GDP numbers, Finance Minister Arun Jaitley told reporters here that they showed that the impact of the two major structural reforms - demonetisation and GST - "are behind us".

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In the last 12 months, Modi government withdrew most of high-value banknotes from circulation in a snap move known as "demonetisation" and rolled out a national goods and services tax. Of the past 14 quarters, the manufacturing sector has grown by more than 9 per cent in only six.Government expenditure and public administration, which as a sector has a weight of around 13 per cent, could be another worry point. In Q2FY17 it was 7.5%, in Q2FY16 it was 7.6% and in Q2FY15 it was 8.4%. "Overall, the services sector recorded a growth of 7.1 percent in the second quarter", the Finance Minister said. Since the final data of GST is still awaited, it could have hampered the growth numbers in Q2. GST was aimed at transforming India's 29 states into a single market but it has hit millions of small businesses due to complex rules and technical glitches.

According to Anis Chakravarty, Lead Economist, Deloitte India, the latest set of numbers showed improved performance of manufacturing that could have possibly been affected by the GST implementation. This is one message policy makers can not ignore while they interpret the economic growth numbers for July-September 2017, released by the Central Statistics Office on Thursday. What would be the reason and where the country posted such a growth?

Trade, hotels, transport & communication and services related to broadcasting sector grew by 9.9 percent as compared to growth of 7.7 percent in Q2 of 2016-17. "However, the deflator for this segment is declining in the past three quarters (from 5.0% to 2.1%) which is contributing to higher real growth", SBI said. This could portend a resurgence of inflationary pressures on food prices that would limit the room for growth-supportive monetary action by the Reserve Bank of India.

The agency expects the economy to grow 6.7 percent in the fiscal year ending March 31, and 7.5 percent the following year.


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