Slowdown signals (Indian Economy Q2 GDP growth rate)

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Slowdown signals (Indian Economy Q2 GDP growth rate)

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• July-Sept Q2 estimates: The CSO (Central Statistics Office) figures indicate that economy is slowing down. GDP growth was 7.1% in Q2 compared to 8.2% in April-June Q1.
• Why so? Rising oil prices and weakening rupee impacted the growth dynamic.
• GVA data: It shows 5 / 8 sectors slowing down from Q1, and only some - public administration, defence, trade, hotel, transport, communication etc. growing higher.
• Agriculture: As Kharif output grew only 0.6% (last year expansion was 1.7%), GVA growth in Agri was only 3.8% in Q2 (which was 5.3% in Q1).
• Rural demand scene challenging: Due to farm sector distress, below-normal monsoon and 8% shortfall in Rabi sowing (till 30-Nov.), expect trouble ahead.
• Weak consumption spending data: Poor demand in rural hinterland reflects here. Growth in PFCE was 7% (compared to 8.6% in Q1).
• Manufacturing: The 7.4% expansion was about half of Q1's 13.5%, and was closer for FY18's annual 7.1%. The IIP data for Aug-Sept was 4.6%. Poor car and 2-wheeler sales indicates that as well.
• Encouraging picture: The GFCF data shows (Gross Fixed Capital Formation) a 12.5% expansion, and made up 32.3% of GDP. The Q1 was 10% expansion.
• Investment revival: It shows so, and non-food bank credit growth also indicates that.
• Cyclical factors: RBI research shows there's a cyclical uptick and may last upto 2022-23. CONCEPT
• Fiscal deficit pressure point: While GFCF growth is good, higher FD may lead to crowding out of private investment demand. The full year FD estimate was crossed in 7 months alone, so holding it 3.3% for FY18-19 is impossible.
• Global factors: The global trade and growth uncertainties are creating a challenge, and in an election year, better fiscal management will be the key.
• Summary - The Indian economy presents a mixed picture today, much as expected, but the uptick in investment demand is a distinct positive.

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