The rebound in GDP growth rate in the September, from a three-year low of 5.7% in the June quarter, indicates that the Indian economy has shaken off the lingering effects of demonetisation and GST rollout
New Delhi: India’s GDP growth quickened to 6.3% in the September quarter, up from a three-year low of 5.7% in the June quarter, an indication that the Indian economy has shaken off the lingering effects of demonetisation last year and GST rollout on 1 July.
Manufacturing activity accelerated due to restocking of warehouses by companies after temporary disruption caused by uncertainties surrounding implementation of goods and services tax (GST).
While agriculture sector decelerated to 1.7% in September quarter from 2.3% in June quarter due to unfavourable kharif output, manufacturing sector grew at 7% against 1.2% during the same period. Mining output and electricity generation also grew faster than the first quarter at 5.5% and 7.6% respectively. However, most of the services sectors slowed down including the public expenditure which grew at 6% in second quarter against 9.5% in the first quarter.
Finance minister Arun Jaitley said September quarter marks the reversal of the downward trend in economic growth. “Additionally, this indicates that perhaps the impact of the two structural reforms—demonetisation and GST—is behind us and hopefully, we can look for an upward trajectory in the third and the fourth quarter," he added.
Former finance minister P. Chidambaram however said this a pause in the declining trend of economic growth. “We cannot say now whether this will mark an upward trend in the growth rate. We should wait for the growth rates over the next 3-4 quarters before we can reach a definite conclusion. 6.3% is far below the promise of the Modi government and far below the potential of a well-managed Indian economy," he tweeted.
While demonetisation of high-value currencies in November last year was expected to have disrupted supply chains in the informal economy, uncertainties emanating from GST implementation forced companies to cut down production and stocks, leading to a dip in manufacturing activity in the June quarter.
Chief statistician of India T.C.A. Anant said the reversal in manufacturing activity in September quarter is mostly to meet the additional demand for the festive season. “Stock rebuilding by companies has not been completed. Next quarter GDP growth may also benefit from restocking," he added.
Anant said the GDP estimation for the trade, hotel transport and communication services (9.9% in Q2 versus 11.1% in Q1) has been calculated using trend growth in past quarters which may have led to an underestimation. “This could be revised upward as new data is made available," Anant said.
Ranen Banerjee, Partner with PwC India, said the Indian economy is still experiencing slow down in the services sector such as finance, transport and hotels that grew at 5.7% in September quarter against 6.4% in the previous quarter. “The possible causes could be the larger working capital requirements faced by services sector (especially export oriented ones) and teething process issues post GST implemention. We also possibly need to examine whether the three percentage point increase in tax rate on services to 18% under GST regime causing some demand side impacts. We will need to wait for thrid and fourth quarter GDP numbers to be able to comment on this more conclusively," he added.
While growth in private consumption dipped to 6.5% in September quarter, investment demand growth picked up to 4.6% during the same quarter.
Public expenditure which used to be the driver of economic growth in the previous quarters slowed down to 6% in September quarter. Data separately released by the Controller General of Accounts showed government exhausting 96% of its annual fiscal deficit target in first seven months of the fiscal year till October against 73% exhausted during the same period a year ago.
Gireesh Chandra Prasad contributed to this story.
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