Contrary to widespread fears among analysts, including those at the World Bank and IMF, the Indian economy improved in Q2—expanding 4.8 per cent against 4.4 per cent in Q1—even as the rate was below 5.2 per cent in this quarter of 2012-13. The feat was, no doubt, helped by eight-quarter high 4.6 per cent increase in farm income. However, barring a rather steep reduction in the growth rate to 4.2 per cent in community, social and personal services, where government is a major player through budget spend bearing the impact of measures on fiscal deficit containment, one half of the pace a year ago and 9.4 per cent in Q1, all other sectors have recorded enhancement in rates.

Thus, manufacturing got back into positive growth phase and power generation increased at twice the speed of Q1; construction sector income grew 4.3 per cent, a halftime more than the rate in Q1; trade, hotels and transport were up by 4 per cent (3.9 per cent), and financing and business services regained double-digit growth after five quarters.

Mining and quarrying, which supplies fuel to electricity and minerals to industry, continued to be in red zone for the fourth quarter, though the decline was much smaller at 0.4 per cent.

Project investment seems to be coming out of the rut; gross fixed capital formation was up by 2.6 per cent, against 1.2 per cent y-o-y drop in Q1 and around the same measure of growth in Q2 of fiscal 2012-13. Private final consumption expenditure accelerated to 2.2 per cent from 1.6 per cent in Q1, even as the rate was much below 3.5 per cent in this quarter a year ago. Export of goods and services expanded strongly by 16 per cent in Q2 as compared to the decline in Q1 and 5 per cent increase in Q2 of fiscal 2012-13. Import remained at year-ago level for the second quarter.

ECONOMIC PERFORMANCE (Y-O-Y % GROWTH)
 Period
Construction
GFCF
Manufacturing
GDP
2010-11
10.2
14.0
9.7
9.3
Q1
10.6
15.2
11.3
9.5
Q2
8.2
13.5
8.2
8.6
Q3
10.9
18.0
10.0
9.2
Q4
11.1
9.9
9.5
9.9
2011-12
5.6
4.4
2.7
6.2
Q1
3.8
13.9
7.4
7.5
Q2
6.5
3.8
3.1
6.5
Q3
6.9
-1.7
0.7
6.0
Q4
5.1
2.6
0.1
5.1
2012-13
4.3
1.7
1.0
5.0
Q1
7.0
-2.2
-1.0
5.4
Q2
3.1
1.1
0.1
5.2
Q3
2.9
4.5
2.5
4.7
Q4
4.4
3.4
2.6
4.8
2013-14
Q1
2.8
-1.2
-1.2
4.4
Q2
4.3
2.6
1
4.8

Trends in H1
The economy expanded 4.6 per cent in H1, indicating a slowdown from 4.7 per cent in H2 and 5.3 per cent in H1 of fiscal 2012-13. Agriculture fared better with 3.6 per cent rise, against 2.3 per cent decline in the corresponding period a year ago following healthy progress of southwest monsoon.

According to the First Advance Estimates of Production of Food Grains released by the Department of Agriculture and Cooperation, production of coarse cereals, pulses and oilseeds are expected to grow by 4.9 per cent, 1.9 per cent and 14.9 per cent, respectively, during the Kharif season of 2013-14. Mining and manufacturing were in the red zone, whereas construction, trade, hotels, and transport, community, social and personal services saw decline in growth rates to 3.5 per cent (5.1 per cent), 4 per cent (6.4 per cent) and 6.6 per cent (8.6 per cent), respectively, but power generation bettered the year-ago feat with 5.7 per cent (4.7 per cent), and financial and business services with 9.5 per cent (8.8 per cent).

Project investment progressed into positive phase marginally, though the rate indicated a slip from 4 per cent in H2 of the preceding fiscal, which had raised hopes of a strong rebound in production capacity growth. The investment rate, as measured by GFCF to GDPmp, declined from 34.2 per cent to 33.1 per cent, but indicated an improvement over around 32.3 per cent during H2 of fiscal 2012-13. Private final consumption expenditure (1.9 per cent) and government final consumption expenditure (4.7 per cent) increased at nearly half the pace a year ago. Export expanded 7.3 per cent (8.6 per cent) whereas import stagnated annually (+10 per cent).

GROWTH RATES (%)
Sector
2012-13
2013-14
 
Q1
Q2
Q1
Q2
Agriculture, forestry & fishing
2.9
1.7
2.7
4.6
Industry
1.8
1.3
0.2
2.4
   Mining and quarrying
0.4
1.7
-2.8
-0.4
   Manufacturing
-1
0.1
-1.2
1
   Electricity, gas and water supply
6.2
3.2
3.7
7.7
   Construction
7
3.1
2.8
4.3
Services
7.7
7.6
6.6
5.9
   Trade, hotels, transport and communication
6.1
6.8
3.9
4
   Financing, insurance, real estate and business services
9.3
8.3
8.9
10
   Community, social and personal services
8.9
8.4
9.4
4.2
Total GDP at factor cost
5.4
5.2
4.4
4.8

Prognosis for H2
Following a healthy southwest monsoon, farm sector income is likely to rebound in H2, so would power generation. Services have got certain resilience, even as government services would probably see containment on fiscal prudence count. In these circumstances, an upturn in manufacturing would largely decide the extent of acceleration in the aggregate GDP rate in H2, which by the way was around 4.7 per cent in the second half of fiscal 2012-13. We expect industry to do well on strong growth in farm income and hopefully export.

Overall, it appears that the economy would largely maintain the previous year’s pace of 5 per cent in the current fiscal, which is the second year of the 12th Plan. Project investment could see some improvement in H2, but overall it would remain restrained for the second year in row.


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