Economy rebounds: GDP growth rate rises to 6.3% in September quarter

Illustration: Ajay Mohanty
The country’s economic growth recovered to more than 6 per cent in the July-September quarter, backed by strong manufacturing, allaying doubts about disruptions caused by the goods and services tax (GST).

This was a break with five quarters of declining trends in growth, but India remained behind China in economic expansion.

It was destocking in the first quarter of 2017-18 due to pre-GST jitters that had pulled down gross domestic product (GDP) growth to a more than three-year low.

GDP rose 6.3 per cent in the quarter ended September, higher than the 5.7 per cent in the previous one on improved investment and steady demand, the data from the Central Statistics Office showed on Thursday.

The growth was the highest in three quarters, but lower than the 6.9 per cent recorded in the third quarter of 2016-17, when demonetisation was announced.

Gross value added (GVA), which is summation of agriculture, industry and services, also grew to a three-quarter high of 6.1 per cent compared to 5.6 per cent in the previous two quarters.

This prompted Finance Minister Arun Jaitley to say that the impact of demonetisation and the GST were behind us. “Hopefully, growth in coming quarters will be on an upward trajectory,” he told reporters after the GDP data was released.

He said deceleration trends in overall growth witnessed since Q1 of the last fiscal year had been reversed. “The economy now seems to have weathered the transitional challenges experienced earlier in the year and appears poised for a durable recovery, going forward,” the finance minister said.

While investment grew 4.6 per cent in Q2 compared to 1.6 per cent in the first quarter on a year-on-year basis, its share in GDP fell to 27.5 per cent from 29.9 per cent in Q1, indicating that GST-related stress in the economy had not dissipated.

The GST was introduced on July 1 across the country.

While manufacturing grew 7 per cent in the second quarter against 1.2 per cent in the first, services sector growth showed a significant decline to 7.1 per cent from 8.7 in the previous quarter on account of the muted performance of the financial, insurance and real estate sectors.

None of the segments grew in double digits though trade, hotel, transport, etc services rose 9.9 per cent, albeit lower than 11.1 per cent in the previous quarter.

Manufacturing bounced back despite a high base effect of 7.7 per cent in Q2 of the previous year.

“It doesn't appear that inventory accumulation has led to GDP increase in Q2. But it will remain in Q3 as firms increase production in anticipation of more sales during the festive season," chief statistician T C A Anant told journalists. Agricultural growth fell to 1.7 per cent in Q2 from 2.3 per cent in the previous quarter because of a sharp decline in the production of foodgrains during the kharif season.

Kharif foodgrain production was down 2.8 per cent this year as against 10.7 per cent growth last year.

Anant said while calculating GDP, the indirect tax number that had been taken was based on certain calculations.

“So there is an underestimation. That is what he (Anant) is saying. To that extent the GDP number may go up when it is finally revised,” Finance Secretary Hasmukh Adhia said. 

GDP growth in the first half of the fiscal stood at 6 per cent versus 7.7 per cent in H1 last year.

“The latest set of numbers shows that activity levels were recovering from the disruption caused in the first quarter … the second half is expected to see a further improvement from these levels,” said Anis Chakravarty, lead economist, Deloitte India.

China remained ahead of India for a third quarter in a row in July-September, posting 6.8 per cent growth.

Small and medium enterprises and exporters, however, continue to face return-filing issues and working capital constraints due to a slow release of refunds.

Mining also posted a sharp uptick in growth to 5.5 per cent from a decline of 0.7 per cent in the previous quarter.

“The improvement in the GVA growth of manufacturing and mining was the key factor underpinning recovery in Q2 FY18. Although manufacturing volume growth in Q2 FY18 was not as strong as we had initially expected on the basis of restocking after the GST, rising commodity prices and fewer discounts led to a revival in earnings," ICRA Principal Economist Aditi Nayar said.

The government accounts data, released earlier in the day, showed that the Centre's fiscal deficit touched 96 per cent of the budget estimate in the first seven months of the year. The Q2 growth numbers place the government in a better position with respect to spending to spur economic activity.

Government spending slowed in the quarter, growing 4.1 per cent, as against 17.1 per cent in the June quarter. This could be attributed to frontloading of expenditure by the government due to the early passage of the Finance Bill in the current fiscal year.

Moody’s had upgraded India’s sovereign credit rating for the first time in 14 years on account of progress in economic and institutional reforms boosting growth potential.

The Economic Survey had forecast GDP growth for the fiscal year in the range of 6.75-7.5 per cent, but its second volume later said that 7.5 per cent might be difficult to achieve.

Chief Economic Advisor Arvind Subramanian said growth would be "pretty much" in line with the projections made in the Survey.

NITI Aayog Vice Chairman Rajiv Kumar said the growth numbers showed that the economy had come out of the woods and economic expansion for the full year would come in at 6.5-7 per cent.



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