The gross domestic product (GDP) for October-December quarter came in at Rs11,58,764 crore, up by 6% year-on-year (y-o-y), but lower than the 7.9% y-o-y growth in the previous quarter as well as the Bloomberg consensus estimate of 6.9%.
The GDP growth was hit by contraction in agricultural output as the full effect of failed monsoon began to show itself in the quarter. Further, community expenditure for the quarter also remained weak, which affected the services growth. Industrial growth, however, grew by a robust 11.6% y-o-y on the back of strong growth in the manufacturing sector.
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Further, a slowdown in government spending compared with the previous year also had a role to play in the lower-than-expected GDP growth for the quarter under review.
However, strong growth in the industrial sector reflects that the Indian economy continues to tread on the path of economic recovery and the muted growth reflected during the quarter can be regarded as an aberration rather than an indicator of the future growth trend.
The prospects of a healthy rabi crop provides optimism relating to agricultural growth in the quarter ahead, leading us to believe that the 7.2% growth target set by the government for FY10 is likely to be achieved.
The industrial sector registered a growth of 11.6% y-o-y in the quarter, higher than 8.3% y-o-y growth in the previous quarter and almost four times as high as the 2.1% y-o-y growth in the same quarter of the previous year. The growth was led by the manufacturing segment, which grew by a robust 14.3% y-o-y (against 9.2% y-o-y growth in the second quarter of FY10) and steady growth in the mining and construction segments. The growth was, however, capped by lower growth in electricity/gas/water segment.
GDP for the agricultural sector contracted by 2.8% y-o-y in the December quarter against a growth of 0.9% in the September quarter and a contraction of 1.4% in the December quarter of FY09. The contraction in agricultural output was on account of the full effect of the failed monsoon, which hit kharif production, being reflected during the quarter. However, the government expects agricultural output to recover on the back of prospective healthier rabi season.
The services sector registered a growth of 6.3% y-o-y in the quarter, which is lower than 9.3% y-o-y growth in the previous quarter. This was due to a 2.2% y-o-y contraction in the community/social services segment (that expanded by 12.7% y-o-y in the second quarter of FY10). The contraction in the community/social services was due to the high base effect of the previous year in which the community segment registered a growth of 28.7% y-o-y on the back of a step-up in the government stimulus spending to revive the flagging economy.
From an expenditure perspective, consumption grew by a subdued 0.9% y-o-y in the quarter largely due to a 10.3% y-o-y contraction in the government’s final consumption expenditure. Private consumption, too, remained muted, growing by 3.4% y-o-y compared with 5.5% y-o-y growth in the previous quarter.
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