Gross value added growth slows to 7.1 per cent in second quarter, from 7.3 per cent in April-June.

GDP growth accelerated in the second quarter of this financial year to 7.3 per cent on the back of a stronger performance in the agriculture sector, official data released on Wednesday showed. Gross value added for the second quarter grew by 7.1 per cent.

While GDP growth quickened in the second quarter from the 7.1 per cent seen in the April-June quarter, GVA growth slowed from the 7.3 per cent registered in that period. Both GDP and GVA growth were slower in the second quarter of this financial year as compared with the same period in the previous year, having registered a growth of 7.6 per cent and 7.3 per cent respectively.

Experts, however, predict that the next two quarters of the year will see subdued growth even as government officials declined to comment on the short-term future citing unavailability of data on the effect of demonetisation on the economy.

Chief Economic Advisor Arvind Subramanian, however, highlighted some cause for optimism.

“Nominal GDP growth picked up a fair amount, accelerating from 10.4 per cent in the first quarter to 12.1 per cent in the second quarter, showing some signs of the underlying strength of the economy,” Mr. Subramanian said while speaking to reporters at North Block.

‘Two halves’

“Expect this year to be a year of two halves as the drive to demonetise is likely to impart a negative bias to the numbers in the near term,” Anis Chakravarty, Lead Economist, Deloitte India said. “Overall, while the high frequency indicators for November still aren’t available, we could witness a negative impact on full year GDP of around 30-50 bps from our earlier estimate of 7.6 per cent.”

The agriculture sector buoyed overall growth, registering a 3.3 per cent GVA growth rate in Q2 of this financial year as compared with 1.8 per cent in the previous quarter and 2 per cent in Q2 of 2015-16.

Sown area

“Agriculture did a little better than last year, largely due to the improved monsoon,” Chief Statistician TCA Anant said while announcing the data. “Sown area has improved and therefore the first advance estimate for agriculture has led to a rise in the second quarter estimate of GDP.”

The manufacturing sector saw a significant slowdown in the growth of its gross value added, registering a growth of 7.1 per cent in Q2 of this financial year as compared with 9.1 per cent in the first quarter, and 9.2 per cent in Q2 of 2015-16.

Manufacturing slowdown

“Manufacturing has shown a slowdown in growth,” Mr. Anant said. “This is in large measure because at this stage in GDP computation, the only indicators which are available to compute GVA and GDP in manufacturing are the IIP and the quarterly estimates filed by small number of companies which file advance estimates. Both of these sets of indicators show slower growth.”

“Within manufacturing, the poor performance of the IIP is due to very poor performance in fabricated metal products, furniture manufacturing, and apparel, all of which play a major role in the informal manufacturing sector,” he added.

The mining and quarrying sector contracted by 1.5 per cent in Q2 compared with a contraction of 0.4 per cent in the first quarter and a growth of 5 per cent in Q2 of 2015-16. The contraction this year was mostly due to the base effect, Mr. Anant said.

Mining contraction

“Mining and quarrying has come in worse than last year and this has been shown in the IIP figures,” he said. “Throughout, mining and quarrying has come in negative. Please understand this is on the back of a very sharp increase in mining and quarrying activity in 2015-16.”

There were, however, some downsides to the data, Mr. Subramanian pointed out.

“Private investment is down substantially, which needs to be watched,” he said. “And some of the growth in GDP is on the strength of government spending.”

Gross fixed capital formation, a proxy for private sector investment, was only 29 per cent of GDP in Q2 of this financial year as compared with 32.9 per cent in the same quarter of 2015-16. Government final consumption expenditure, on the other hand, was 13 per cent of GDP in the second quarter of this financial year compared with 12.1 per cent in the previous year.

“Growth continues to be driven by consumption expenditure and higher spending by the government to aid recovery,” Mr. Chakravarty of Deloitte India added. “That said, given the latest move to demonetise along with limited room for government spending, the outlook for the current year seems grim.”

Fiscal deficit

A separate data release by the government showed that the fiscal deficit in October stood at 79.3 per cent of Budget Estimates down from 83.9 per cent in September.

Total revenue receipts as of October accounted for 50.7 per cent of Budget Estimates for the full year, up from 41.2 per cent in September. Total expenditure as of October accounted for 58.2 per cent of Budget Estimates up from 52 per cent in September.

“Both tax and non-tax revenue collections jumped during the month of October,” Richa Gupta, Senior Economist, Deloitte India said.

“It is important to note that the government has not fallen back on expenditure and has a higher level of planned expenditure as compared to the same period last year,” Mr. Gupta said.