GDP growth zooms to 8.2% in June quarter, beats estimates

“India’s GDP for the first quarter this year growing at 8.2% in otherwise an environment of global turmoil represents the potential of New India. Reforms and fiscal prudence are serving us well. India is witnessing an expansion of the neo middle class," tweeted finance minister Arun Jaitley.

Economic growth had dipped to 5.6% in the April to June 2017 quarter as companies reduced stocks ahead of the rollout of the goods and services tax (GST) in July last year.

Manufacturing grew in double digits at 13.5% in the June quarter from a contraction of 1.8% in the same quarter a year ago, while construction made strong recovery to grow at 8.7% against 1.8% during same period last year, which is good for the job market, according to data released by the Central Statistics Office (CSO) on Friday. Agriculture also grew at a robust 5.3% in the June quarter against 3% during the same quarter a year ago.

While private consumption picked up (8.6%) in the June quarter, implying a recovery in consumer demand that drives the economy, a robust double-digit growth (10%) in investment demand indicated factories may be expanding their capacity to meet the additional demand.

Worryingly, services slowed to grow at 7.3% in the June quarter from 9.5% a year-ago. Government expenditure, which has been supporting growth, also decelerated to grow at 9.9% from 13.5% during same period a year ago. Mining value addition (0.1%) remained at the same level as last year.

“The GDP growth rate of 8.2% for the Q1 (April-June) of fiscal year 2018-19 indicates clearly that several structural reforms introduced such as GST have started giving rich dividends.The growth in manufacturing sector (13.5%) also indicates broad based recovery of demand," finance secretary Hasmukh Adhia tweeted.

However, former finance minister and Congress leader P. Chidambaram cautioned in a tweet that the advantage of a favourable base in the June quarter would not be there going forward. “When we reach Q3 and Q4, the rate of growth may decline and the annual growth rate may be more or less like last year’s," he said. Apart from the base effect, risks to sustaining 8% growth also come from higher crude oil prices, interest costs and a weakening rupee, as well as fiscal constraints, said Aditi Nayar, principal economist at Icra Ltd. The rupee touched a new low at 71 per dollar on Friday. So far this year, the rupee has weakened 9.98%, making it the worst performer among Asian currencies.

The Reserve Bank of India’s (RBI’s) six-member monetary policy committee raised policy rates by 25 basis points to 6.5% in August, citing rising inflationary risks.

This is the first time since October 2013 that RBI has raised rates in consecutive meetings of its rate-setting panel. In its annual report released on Wednesday, RBI had said the acceleration of growth that commenced in the second half (October-March) of 2017-18 is expected to be consolidated and built up on in the current financial year.

RBI expects the economy to accelerate to 7.4% in FY19 from 6.7% a year ago.

In an update to its World Economic Outlook released in July, the International Monetary Fund trimmed India’s growth projection for 2018-19 by 10 basis points to 7.3%, citing negative effects of higher crude oil prices on domestic demand and faster-than-anticipated monetary policy tightening because of higher-than expected inflation.

The central bank’s post-mortem of the invalidation of high-value currencies in November 2016 on Wednesday showed that all but ₹ 10,720 crore of the ₹ 15.4 lakh crore is back in the banking system, indicating that the government’s shock move to deal a body blow to black money has not worked as desired.