The economy grew by 7.4% during July-September on the back of higher activity in manufacturing as well as most services sectors. The expansion was quicker than the 7% rise during April-June 2015, but slower than the 8.4% growth registered during the second quarter of the last fiscal. Data released showed a big boost came from manufacturing, seen to be critical for a rise in jobs. Compared to an expansion of 7.2% in the first quarter, the sector is estimated to have grown by 9.3% during the September quarter, the fastest pace since July-September 2012. CSO appeared to be more upbeat on the manufacturing sector than the trends available from the index of industrial production have suggested.
Even the core sector index suggested that industrial activity was more subdued. Economists attributed the difference to the new methodology adopted by CSO. Its estimates were based on data of large companies listed on stock exchanges as well as from smaller firms and khadi and village industries.
The government, however, was cheering the numbers.“The second quarter figures give us a sense of satisfaction...We expect growth this year to be better than last year and even better next year... And, when manufacturing starts turning despite globally adverse circumstances, I think that's a very significant figure from our point of view,“ finance minister Arun Jaitley told reporters.
The acceleration in economic growth will come as a boost to the government, which has identified getting the economy back on rails as the topmost priority . But it is nowhere near the over 8% growth that the finance ministry has projected in the Economic Survey , raising expectations that the government may have to revise downwards its forecast for 2015-16. In a statement, the ministry said it expects the economy to grow by around 7.5% this year.
The government estimates for the full year were seen to over-optimistic given that most economists see a 7.5% expansion to be more feasible. After the data was released, SBI lowered the growth forecast for the current year from 7.8% to 7.6%.
India is seen as a bright spot given the contraction witnessed in some of the other emerging market economies such as Brazil and Russia, while China has seen a slowdown in recent months. But domestic demand -especially in rural areas remained weak, which was reflected in the private consumption growth decelerating to 6.8% in the September quarter, from 7.1% a year ago.
While this has prompted companies to go slow on fresh investment, seen to be critical to boost job creation, there seems to have been a pick up.Gross fixed capital formation is estimated to have increased by 6.8% in Q2 as against 3.8% during July-September 2014.
The service sectors seemed to be doing well although sectors such as trade, hotel, transport and communication, which grew 10.6% during the second quarter, saw a slight moderation. But financial services, real estate and professional services saw improved performance but narrowly missed the double-digit mark, expanding by 9.7%. The other good news is that agriculture is estimated to have grown by 2.2% despite the weak monsoon rains. On the flip side, construction activity saw a sharp slowdown.
Crisil said it expected the economy to grow by 7.4%.“This will gradually improve capacity utilisation rates and lead to revival of private investments by second half of next fiscal. Also, the pay commission payouts next fiscal will be an extra kicker for consumption and growth.“
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