Various ratings agencies had predicted such a slowdown in the second quarter due to the impact of rising oil prices on input costs, and also due to the effect of the rupee devaluation.
Second-quarter GDP growth slowed to 7.1%, from 8.2% in the preceding three-month period, official estimates released on Friday show. Gross Value Added (GVA) growth eased to 6.9% in July-September, from 8%.
The GDP expansion in the corresponding quarter of the last fiscal year was 6.3%, while GVA growth was 6.1%.
Economists said while the slowdown was anticipated, given that oil prices had been high and the rupee had weakened against the dollar during the quarter, the actual numbers had surprised on the downside.
“The general expectation was it would come in anywhere between 7.2% and 7.9%,” said D.K. Srivastava, Chief Policy Advisor at EY India. “It has come down lower than that primarily because of the impact of net exports being in the negative. The growth rate in investment is about 12% but this contribution has been negated by the negative effect of exports.”
The data also show that GDP growth in the first half (April-September) was 7.6%, faster than 6% in the year-earlier period. First-half GVA growth was estimated at 7.4%, up from 5.8%.
“GDP growth for second quarter 2018-19 at 7.1% seems disappointing,” Economic Affairs Secretary Subhash Chandra Garg tweeted. “Manufacturing growth at 7.4% and agriculture growth at 3.8% is steady. Construction at 6.8% and mining at -2.4% reflect monsoon months deceleration. Half year [GVA] growth at 7.4% is still quite robust and healthy. First half GDP growth is at 7.6% and is quite robust and healthy. Still, the highest growth rate in the world.”
Analysts expect easing oil prices and the rupee’s recent rebound to boost third-quarter GDP growth.
The sectors that are estimated to have registered growth above 7% in the second quarter include ‘Manufacturing’, ‘Electricity, Gas, Water Supply & Other Utility Services’, ‘Construction’, and ‘Public Administration, Defence and Other Services’.
The ‘Agriculture, Forestry and Fishing’ sector grew at 3.8% while the ‘Mining and Quarrying’ sector contracted by 2.4% during the period.
Growth “is marginally lower than Ind-Ra’s expectation of 7.3%,” Devendra Kumar Pant, Chief Economist at Fitch Group company India Ratings and Research (Ind-Ra), wrote in a note. “Even the GVA growth at 6.9% is lower than Ind-Ra’s expectation of 7.2%. “On the whole… second quarter GDP numbers do not ring in any alarm or indicate any serious deviation from the expected growth numbers,” Mr. Pant added. “No doubt the sudden spurt in crude oil prices and depreciation in rupee had a somewhat destabilising impact on the economy lately, but over the past month they have corrected equally fast.”
Prime Minister’s Economic Advisory Council Chairman Bibek Debroy said that the robust growth rates in sectors such as manufacturing and construction show that the growth momentum continues to be broad based.
Q3 and Q4 will register similarly: Chidambaram
Meanwhile Congress leader P Chidambaram said, “As expected GDP growth in Q2 of 2018-19 was a good 1% lower than in Q1.”
“Q1 number was on a very low base in the previous year. It did not signify a bump in growth and did not warrant the jubilation of the BJP three months ago,” he said, adding, “Going forward, it is likely that Q3 and Q4 will register similar growth rates unless there are unexpected shocks.”
“The new normal for the Indian economy is 7% and 2018-19 will be a normal year,” he noted.