India’s economy regained momentum in the September quarter as the manufacturing sector shrugged off any teething impact from the July 1 implementation of the Goods and Services Tax to propel gross domestic product (GDP) growth to 6.3%.
GDP growth recovered in the second fiscal quarter from a three-year low of 5.7% in the preceding three-month period, while Gross Value Added (GVA) growth accelerated to 6.1% from 5.6% in the first quarter, according to official data released by the government on Thursday.
“The GDP figure for Q2 at constant prices is 6.3% versus 7.5% in the second quarter of the previous financial year,” TCA Anant, Chief Statistician of India and Secretary to the Ministry of Statistics and Programme Implementation, said at a press conference. “This reversal... in the trend is very encouraging.”
GDP growth for the first half of the financial year (April-September) was 6% compared with 7.7% in the year-earlier period. GVA growth was at 5.8% compared with 7.2% over the same period.
“This indicates that perhaps the impact of demonetisation and GST is now behind us and hopefully in the coming quarters we can look for an upward trajectory,” Finance Minister Arun Jaitley said. “The most significant aspect is that this quarter’s positive result has been impacted significantly by growth in manufacturing,” he added.
The manufacturing sector expanded by 7% in the quarter, a robust acceleration from 1.2% in the first quarter. Still, the pace was slower than the 7.7% seen in the second quarter of 2016-2017. Other sectors that witnessed growth of more than 6% were electricity, gas, water supply and other utility services, and trade, hotels, transport and communication services related to broadcasting.
“The latest set of numbers on growth... show that activity levels were recovering from the disruption caused in the first quarter,” Anis Chakravarty, lead economist, Deloitte India, wrote in a note, adding that the break-up showed improved performance by manufacturing that could have possibly been affected by the implementation of the GST. “High frequency indicators such as auto sales suggest that demand has recovered since then and manufacturing could see better numbers in the quarters ahead,” Mr. Chakravarty wrote.
‘Agriculture a concern’
Agriculture, however, remained a cause for concern.
“The sector that has performed worse is agriculture, which grew at 1.7%,” Mr. Anant said.
“The performance in the agriculture sector has been held up by the non-crop sector. This year’s crop production, while higher than the five-year average, is lower than last year, which saw a strong growth.”
The agriculture sector grew by 2.3% in the first quarter, and by 4.1% in the year-earlier period.
Mr. Jaitley also highlighted the uptick in gross fixed capital formation, which grew by 4.7% in the second quarter compared with 1.6% in the first quarter.
This improvement, the Finance Minister said, reflected a revival in investment levels.
Experts are, however, pointing to the slowdown in the services sector, especially finance, transport, and hotels, all of which saw growth slowing in the second quarter compared with the first quarter.
“The possible causes could be the larger working capital requirements faced by services sector (especially export- oriented ones) and teething process issues post-GST implementation,” Ranen Banerjee, Partner - Public Finance and Economics, at PwC India said.
