Economic Rebound

Why in news?

Central statistics office (CSO) data reveals GDP grew 6.3 per cent in the July-September quarter.

What does GDP estimates imply?

The 6.3% is higher than the 5.7 per cent GDP growth in the April-June quarter, but lower than the 7.5 per cent growth in the second quarter of last fiscal.

Gross value added (GVA), which is summation of agriculture, industry and services, also grew to a three-quarter high of 6.1 per cent compared to 5.6 per cent in the previous two quarters.
The Q2 growth numbers place the government in a better position with respect to spending to spur economic activity.

What are the reasons behind the economic rebound?

It marks a reversal and is driven by manufacturing, and investment growth, supported by strong growth of refinery products and steel output.
Manufacturing activity pushes up GDP growth, investments grow by 4.7% in Q2.
Global rating agencies has upgraded India’s sovereign credit rating for the first time in 14 years on account of progress in economic and institutional reforms boosting growth potential.

What are the areas of concern?

Q2 GDP growth may have been underestimated due to lack of adequate data on GST collections and sales tax.
While investment grew 4.6 per cent in Q2 compared to 1.6 per cent its share in GDP fell to 27.5 per cent from 29.9 per cent in Q1.
While manufacturing grew 7 per cent in the second quarter against 1.2 per cent in the first, services sector growth showed a significant decline to 7.1 per cent from 8.7 in the previous quarter.
None of the segments grew in double digits though trade, hotel, transport, etc. services rose 9.9 per cent, albeit lower than 11.1 per cent in the previous quarter.
Agricultural growth fell to 1.7 per cent in Q2 from 2.3 per cent in the previous quarter because of a sharp decline in the production of foodgrains during the kharif season.
Small and medium enterprises and exporters, however, continue to face return-filing issues and working capital constraints due to a slow release of refunds.
The Economic Survey had forecast GDP growth for the fiscal year in the range of 6.75-7.5 per cent, but its second volume later said that 7.5 per cent might be difficult to achieve.

Source: Business Line, Business Standard