Government data released on Friday showed that the economy slowed to 7.1 per cent in the July-September quarter, the lowest in three quarters.

Still, India has retained the tag of the world’s fastest growing economy, ahead of China.

The growth number, better known as gross domestic product (GDP), indicates the sum of value of goods and services produced during the period under consideration. It is measured at constant price with 2011-12 as the base level.

It is estimated at ₹33.98 lakh crore in Q2 FY19, against ₹31.72 lakh crore in Q2 FY18, showing a growth of 7.1 per cent. The growth had been 8.2 per cent in Q1 FY19 and 6.3 per cent in Q2 FY18.

Economic Affairs Secretary Subhash Chandra Garg said the growth number “seems disappointing.” “Manufacturing growth at 7.4 per cent and agriculture growth at 3.8 per cent are steady. Construction at 7.8 per cent and mining at -2.4 per cent reflect monsoon months deceleration. Half-year growth at 7.6 per cent is quite robust and healthy,” he said in a tweet. “Still the highest growth rate in the world,” he added.

Farm output grew 3.8 per cent YoY in Q2 FY19, against 5.3 per cent in Q1 FY19 and 2.6 per cent in Q2 FY18.

What pulled it down

Several factors conspired to hold the economy back during the middle of this year, including a weak rupee and a squeeze in India's shadow banking sector that hindered both investment and consumption. Some economists expect growth to slow down to around 7 per cent in the second half of this fiscal due to state spending cuts, muted rural demand and the statistical impact of higher growth in the same period a year ago.

B Prasanna, Group Executive and Head (Global Markets Group) at ICICI Bank, said the Q2 growth rate fell well below expectations.

This was primarily on account of a sharp weakness in agricultural growth. On the positive side, consumption and investment growth remained strong, even as consumption moderated sequentially, he said. Government spending has also provided some support to the numbers, he added.

However, on the sectoral side, the trade, hotels and financial services components slowed down much more than expected. Gross value added net of agriculture and government spending moderated sequentially, indicating a slowdown in core activity as well.

“We had only expected the growth to slow down meaningfully from the third quarter, especially given that the base effect in the second quarter was fairly supportive. However, in light of the current second quarter print and signs of slowdown in high frequency indicators, our FY19 forecasts of 7.5-7.6 per cent will have to be revised lower,” Prasanna said.

Full-year estimate

Devendra Kumar Pant, Chief Economist, India Ratings and Research (Ind-Ra), said the latest GDP numbers do not ring any alarm bells or indicate any serious deviation from the expected growth numbers. No doubt the sudden spurt in crude oil prices and depreciation in rupee had a somewhat destabilising impact on the economy, but over the past month they have corrected equally fast, he said.

“Ind-Ra therefore believes that FY19 may still end up with a GDP growth of 7.3 per cent and RBI may get the much needed elbow room to keep the policy rate unchanged in the forthcoming 5th bi-monthly policy review on December 5, 2018.

“If the current trend of growth inflation mix continues then a rate hike in the current fiscal is ruled out,” Pant added.