On Wednesday, data released by the National Statistical Office showed that the Indian economy grew at 6.3 per cent in the second quarter (July-September) of the ongoing financial year. This is broadly in line with the consensus market estimates. The RBI in its last monetary policy committee meeting had also pegged the economy to grow at 6.3 per cent. While the first quarter numbers were skewed due to the base effect, looking at the GDP data relative to the pre-pandemic period suggests that the underlying growth momentum in the economy has improved in the second quarter of the year.
Beyond the headline number, the disaggregated data paints a mixed picture. As per the data, value added by agriculture and allied activities grew by 4.6 per cent in the second quarter. However, the first advance estimates released by the agricultural ministry on September 21 showed that food grain production was pegged at 149.92 million tonnes, 3.9 per cent lower than last year. As per some analysts, heavy rains at the end of the monsoon season across north-west and central India are likely to have impacted agricultural activities, exerting downward pressure on the agricultural ministry’s estimates. In the non-farm sector, the data points towards a divergence — weakness in industrial activities, but steady growth in the services sector. Within industry, mining and quarrying contracted by 2.8 per cent in the quarter ended September, while manufacturing activities declined by 4.3 per cent. This is a cause for concern. Over the entire first half of the year (April-September), the manufacturing sector has barely registered a rise. One possible explanation for the contraction in the second quarter is margins coming under pressure — as per some economists, the second quarter results of manufacturing companies reveal higher input costs which have led to a fall in profit margins, thereby impacting value added. However, the services sector has witnessed strong growth. The labour intensive trade, hotels, transport and communication sector grew at a staggering 14.7 per cent, surpassing its pre-pandemic level, even as the financial, real estate and professional services sector maintained a healthy pace.
On the demand side, both private consumption and investment activity continued to show healthy momentum, even as government consumption expenditure contracted, likely reflecting subdued non-revenue spending by the central government. Net exports exerted a drag as imports held steady. The economic outlook in the second half of the year and beyond will be influenced by both global and domestic factors — a slowing global economy, especially the developed economies, as central banks raise interest rates to tackle inflation, will exert pressure on India’s exports, even as domestic demand is likely to be impacted by the tightening of domestic monetary conditions.
