Good News: India’s GDP Growth Rate At 6.3% In Quarter 2, Shows Sharp Economic Rebound

India’s Gross Domestic Product (GDP) numbers for the second quarter (July-September, Q2) of the fiscal year 2017-2018 was released on Thursday, 30 November. Q2 GDP growth surged to 6.3% in September quarter which is a rebound in growth rate, said a report by the Livemint. The GVA (Gross Value Added) to the economy stands at 6.1%, soaring up from 5.6% in the last quarter. According to data from the Central Statistics Office (CSO), the GDP from Q2 stood at Rs 31.66 lakh crore or a growth of 6.3%.

In the 1st quarter, GDP had hit a three-year low to 5.7%. This economic rebound indicates that Indian economy has shaken off the effects of demonetisation and GST rollout. Predictions had been making the headlines that Q2 GDP was set to break five-quarter sliding trend leading to a second-quarter recovery. The slide in the first quarter was due to demonetisation as well as destocking in anticipation of the introduction of Goods and Services tax regime on 1 July.

A poll of 52 economists conducted by Reuters had said that GDP growth for the July-September quarter is likely to be 6.4% against the 7.3% in the same quarter last year. The GVA found out by the same poll estimated to grow by 6.2% from 5.6% in the previous quarter.

Sharp economic growth

Analysts had expected a rebound of the GDP numbers and some had pegged it at 6.4%. According to a report by the India TV, economists at SBI said, “The first quarter growth at 5.7%, a disappointing performance, did cause a lot of heartburn. Q2 trends higher with a downward bias.” Their optimism is rooted in the improving macroeconomic indicators across sectors, especially those affected by the note-ban that dragged down the June quarter numbers.

The GDP of Q1 was certainly pulled down by sluggish manufacturing growth during the first quarter of this financial year clocked the lowest GDP growth rate under the PM Narendra Modi government. The previous low was recorded in January-March 2014 at 4.6%. Rise in consumer demands during the festive season beginning from September around the festivals of Dussehra and Durga Puja leading up to Diwali have contributed to the increase in industrial production.

The Q1 slowdown can be blamed on poor construction demand, contraction in manufacturing due to GST disruptions and a decline in mining activity. Macroeconomic indicators presently point a recovery in the overall activity. The second quarter GDP growth fell a bit short of China, with India still remaining the second largest fastest growing economy behind the dragon.

Sector-wise performance

A sharp bounce in manufacturing growth rate at 7% in July-September from 1.2% in the preceding quarter was among the primary drivers behind the second quarter GDP surge. Farm growth, on the other hand, though has slowed quarter to 1.7% from 2.3% in the preceding quarter. Agricultural production in the second quarter was held due to poor crop output, said a report by The Financial Express.

The construction sector also recorded a decent expansion with a growth rate 2.6% in the Q2 vs 2% in the previous quarter. The industrial activity also saw a surge of 5.8% in Q2 vs the poor performance of 1.6% in Q1. Big companies have also largely adjusted to the changes while benefiting from reduced logistics costs. Private investment and consumption front, however, has failed to pick up which is leading to a rising concern despite the economy staging a comeback.

Electricity output was at 7.6% vs the 7%. Mining and quarrying also picked up significantly accelerating to 5.5% from 0.7% in the previous quarter. India’s benchmark indices had fallen sharply ahead of the release of growth estimates data on Thursday. The BSE Sensex fell 453.41 points (1.35%) while the NSE Nifty declined 134.7 points (1.30%) due to cautious market sentiment.