India's Q2 GDP growth slows to 7.1% as manufacturing activity declines

New Delhi


The pace of India's GDP growth slowed during the second quarter of 2018-19 to 7.1 per cent from 8.2 per cent in Q1, mainly on the back of a drop in manufacturing, even as the government attributed the slowdown to a higher base effect and higher import bill on account of oil prices and weakening of the rupee.

However, on a year-on-year (YoY) basis, the GDP growth showed a rise. It had grown at 6.3 per cent during the corresponding quarter of last year, official data showed here on Friday.

The data furnished by the Central Statistics Office (CSO) showed that GDP growth rate at 2011-12 prices fell to 7.1 per cent from 8.2 per cent in Q1, 7.7 per cent in Q4 of 2017-18 and 6.3 per cent in the corresponding period of the previous fiscal.

Besides, the growth rate of gross value added (GVA) on a sequential basis during Q2 fell to 6.9 per cent from 8 per cent in Q1. It had grown by 6.1 per cent during the corresponding period of the previous fiscal.

"GDP at constant (2011-12) prices in Q2 of 2018-19 is estimated at Rs 33.98 lakh crore, as against Rs 31.72 lakh crore in Q2 of 2017-18," said the Q2 estimates released by the CSO.

"Quarterly GVA (Basic Price) at constant (2011-2012) prices for Q2 of 2018-19 is estimated at Rs 31.40 lakh crore, as against Rs 29.38 lakh crore in Q2 of 2017-18, showing a growth rate of 6.9 per cent over the corresponding quarter of previous year."

The GVA includes taxes, but excludes subsidies.

As per the data, the economic activities which registered growth of over 7 per cent on a YoY basis in Q2 were 'manufacturing', 'electricity, gas, water supply and other utility services', 'construction' and 'public administration, defence and other services'.

"The growth in the 'agriculture, forestry and fishing', 'mining and quarrying', 'trade, hotels, transport, communication and services related to broadcasting' and financial, real estate and professional services is estimated to be 3.8 per cent, (-) 2.4 per cent, 6.8 per cent, and 6.3 per cent respectively during this period," the CSO said in the estimates document.

Sector-wise, YoY quarterly GVA at basic prices for Q2 2018-19 from "agriculture, forestry and fishing" sector showed a growth of 3.8 per cent from 2.6 per cent in Q2 2017-18. 

In addition, quarterly GVA in Q2 2018-19 from "manufacturing" sector grew at 7.4 per cent as compared to 7.1 per cent. 

"IIP manufacturing registered growth rate of 5.5 per cent during Q2 of 2018-19 as compared to 2.5 per cent during Q2 of 2017-18," the estimates document said.

However, the quarterly GVA from "mining and quarrying" sector declined by (-) 2.4 per cent as compared to grow of 6.9 per cent. 

On a sequential basis, the GVA growth of manufacturing sector in Q2 dropped to 7.4 per cent from 13.5 per cent in Q1, while for agriculture it fell to 3.8 per cent from 5.3 per cent and was negative in the case of mining sector at (-) 2.4 per cent from a marginal rise of 0.1 per cent.

Economic Affairs Secretary Subhash Chandra Garg said the GDP growth at 7.1 per cent "seems disappointing". He said while manufacturing and agriculture growth was steady, construction and mining reflected deceleration due to the monsoon. However, he said the half-year growth at 7.4 per cent was "quite robust and healthy". 

According to Aditi Nayar, Principal Economist, ICRA: "The sequential slowdown in GDP and GVA growth in Q2 FY2019, the extent of which is largely in line with our expectations, confirms that the expansion in excess of 8 per cent recorded in Q1 FY2019 was an aberration led by base effects."

India Ratings and Research (Fitch Group) Chief Economist Devendra Kumar Pant said: 
"On the whole therefore second quarter GDP numbers do not ring in any alarm or indicate any serious deviation from the expected growth numbers."

"No doubt the sudden spurt in crude oil prices and depreciation in rupee had somewhat destabilising impact on the economy lately but over the past month they have corrected equally fast."