Second quarter, not half as bad at all

    India’s gross domestic product (GDP) for the July-September quarter grew 6.3%, in line with the Reserve Bank of India’s (RBI) projection. If the central bank’s estimates for the subsequent quarters are as accurate, the Indian economy is on course to expand slightly over 7% in 2022-23, having clocked 9.7% growth in the first half with the official projection for the second half being 4.6%. This would be a fair achievement given the deteriorating world economic outlook on account of energy supply disruption, a global liquidity squeeze and lingering Covid restrictions that are tipping the major economies into recession.

    The second quarter GDP data catches the tail end of the pandemic’s low base effect, and sequential growth over April-June is almost flat. In real terms, consumption during the quarter grew 9.7% from the year-ago period, but rose just about 1% from the preceding three months. Investments grew 10.35% year-on-year and 3.44% quarter-on-quarter. Exports and imports climbed 11.57% and 25.36%, respectively, on year, and 4.97% and 6.38% sequentially. Government expenditure declined both year-on-year and quarter-on-quarter. The sequential picture becomes even more stark at current prices by incorporating the effects of inflation on components of demand. Nominal GDP growth during the quarter was nearly 10 percentage points higher at 16.2%.

    On the supply side, services were expected to lead growth during the quarter, which they did. But services are also driving inflation with new-found pricing power while energy price pass-through continues. Manufacturing, which contracted both on year and sequentially during the quarter, has lost traction in pricing. Supply disruptions were on evidence in mining, which was affected by the monsoon, among other factors. Agriculture has seen the most intensive policy interventions to stabilise prices, and the differential between its real and nominal growth rates is nearest in alignment to that for GDP during the quarter. Inflation management holds the key to India’s growth trajectory.

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