Indian Economy
Introduction:
- In the second quarter of the year (July-September), India’s economy grew at a strong 7.6% annual rate, exceedingly even the most optimistic predictions.
With regard to the Indian economy, what was anticipated?
- The majority of economists estimated growth to be between 6.5 and 7%.
- In fact, during its October monetary policy committee meeting, the Reserve Bank of India itself predicted the GDP would rise by 6.5%.
What areas of the Indian economy expanded?
- The state of agriculture has not been good. The growth rate decreased from 3.5% in the first quarter to 1.2% in the next one.
- Rural demand will be impacted by the unfavourable sector forecast for the second half of the year as well.
- Second, significantly better results have been seen in the industrial sector, which includes construction. Thanks to a favourable base effect and robust industrial growth, it expanded by 13.2% in the second quarter after growing by 5.5% in the first.
- Growth in the manufacturing sector increased to 13.9% from 4.7%.
- Economists at Bank of Baroda reported that, partly as a result of decreased commodity costs, business profitability rose in the second quarter despite muted sales growth.
- The construction industry has also performed well, expanding by 13.3%. In addition, data released on Thursday revealed that the index of eight core infrastructure sectors—which includes, among others, steel, cement, and electricity—grew on average by 10.5% from July to October, compared to 6.1% from April to June.
- Thirdly, the services industry has decelerated.
- It expanded by 5.8% in the second quarter after growing by 10.3% in the first, mostly due to the weak performance of the financial, real estate, trade, hotel, and transportation and communication sectors.
- The rate of decline in private consumption, which was 6.1% to 3.1%, suggests that certain demographic groups are still struggling.
- However, investment activity remained robust, expanding by 11% during the second quarter.
- Government expenditure is still high.
- In actuality, the combined capital expenditures of the federal government and its 26 state governments increased by 26.7% during the second quarter, according to India Ratings and Research.
The second-half growth prospectus:
- However, it is anticipated that the nation’s overall economic momentum will slow down in the second half of the year, partly because of the potential for poor agricultural performance, tighter financial conditions, and the likelihood of a slowdown in government spending as the general elections draw near.
- The economic momentum was expected to slow down in the third and fourth quarters, according to even the RBI’s earlier estimates.
Way Forward:
- India’s GDP recovery has a silver lining and a gloomy cloud. In the second half, the growth momentum will decrease. India needs to keep an eye on the agriculture sector, since it is slowing down the country’s overall GDP growth rate in the second half.
