what’s going on in the economy

India’s economy grew at 2-year high of 8.2 percent in the April-June quarter of 2018-19 on strong performance of manufacturing and agriculture sectors, increasing its lead over China to remain the world’s fastest-growing major economy.

The Gross Domestic Product (GDP) at constant prices (2011-12) had grown at 5.6 percent in the April-June quarter of last fiscal, according to government data released on Friday.

Representational image. Reuters.Representational image. Reuters.
The size of the GDP in the first quarter of 2018-19 was estimated at Rs 33.74 lakh crore as against Rs 31.18 lakh crore in Q1 of 2017-18, a growth rate of 8.2 percent, as per the statement of the Central Statistics Office (CSO).

India’s Gross Value Added (GVA) for the quarter under consideration has been estimated at 8 percent, up from 5.6 percent in the year-ago period.

No doubt its proud moment for the Narendra Modi government and the excellent growth in Q1 GDP made many government representatives and industry bodies more than happy.

Finance Minister Arun Jaitley said in a tweet that the growth represents the potential of new India. “Reforms and fiscal prudence are serving us well. India is witnessing an expansion of the neo middle class.”

NITI Aayog Vice-Chairman Rajiv Kumar in a tweet said: “Excellent news of GDP hitting a 9-quarter high at 8.2 percent”.

Finance Secretary Hasmukh Adhia said it has been a remarkable speed of economic recovery in the last four quarters — 6.3 percent, 7 percent, 7.7 percent and now 8.2 percent.

“The GDP growth rate of 8.2% for the Q1 (April-June) of fiscal year 2018-19 indicates clearly that several structural reforms introduced such as GST have started giving rich dividends.The growth in manufacturing sector (13.5%) also indicates broad based recovery of demand,” he said in series of tweets.

Talking to reporters, Economic Affairs Secretary S C Garg said that the robust performance in the April-June quarter “gives hope” that growth could exceed even estimates of 7.5 percent for the year as whole.

Industry chamber Assocham said the best part about an impressive GDP growth “is that it is being led by employment-intensive manufacturing”.

“Same is true about the construction which again is job-generating sector and grew by 8.7 percent,” said Sandeep Jajodia, President of the chamber.

Here’s an analysis of the six key data points:

For eight quarters from January-March 2015 to October-December 2016, India had consistently remained the fastest growing economy, surpassing China. However, after that from January-March 2017 to July-September 2017 (three quarters) India lost the top slot due to the twin effect of demonetisation and GST. India won back the fastest growing economy tag in October-December 2017 quarter and also hold it for subsequent two quarters. In the latest April-June quarter, while India’s GDP grew at 8.2 percent, that of China’s has risen lower by 6.7 percent.

The GDP growth in Apr-Jun quarter is at nine-quarter high and the previous 8 percent-plus growth was seen in Q1 of 2017 fiscal. After tapering of growth witnessed in Apr-Jun quarter of fiscal 2018 at 5.6 percent because of ill-effects of demonetisation. The growth started picking up from Q2-FY18 albeit at a lower pace. The economy had growth of 6.3 percent in Q2-FY18 and 7 percent in Q3-FY18 and 7.7 percent in Q4-FY18.

At 8 percent, GVA growth at two-year high in Apr-Jun quarter. The earlier 8 percent-plus growth was seen in Q1-FY17. The quarterly GVA at constant (2011-2012) prices for Q1 of 2018-19 has been estimated at Rs 31.63 lakh crore, as against Rs 29.29 lakh crore in Q1 of 2017-18, showing a growth rate of 8 percent over the year-ago period.

The sectoral analysis shows that, the manufacturing is the main driver of the growth in Apr-Jun quarter. The manufacturing GVA grew by robust 13.5 percent in Q1 as against a contraction of 1.8 percent in a corresponding quarter of the previous year and 9.1 percent in the preceding year. Construction is the second most sector that recorded a rise of 8.7 percent in Q1-FY19 as against 1.8 percent in Q1-FY18. However, the growth was actually slowed down from 11.5 percent from the preceding quarter.

Agriculture sector also showed a marked improvement as it reported 5.3 percent in Q1-FY19 as against 3.0 percent in the corresponding quarter last year and 4.5 percent in the preceding quarter.

The sectors that disappointed by posting slower growth in GVA in Q1-FY19 includes mining, trade and hotels, financing and public administrations.

The growth in consumption expenditure by private sector showed a rising trend in June quarter. It surged by 8.6 percent in June quarter as against 6.9 percent in the corresponding quarter last year and 6.7 percent in preceding quarter. However, the consumption expenditure by the government has witnessed a downward trend. It fell to 7.6 percent in June 2018 quarter from 17.6 percent in June-2017 quarter and 16.8 percent in March 2018 quarter.

Gross fixed capital formation (GFCF) or investment at constant prices showed a marked improvement by growing at 10 percent to Rs 10.65 lakh crore in Apr-Jun 2018 quarter. In corresponding quarter last year, it has risen by just 0.8 percent. But it has actually slowed down from 14.4 percent rise witnessed in the preceding March 2018 quarter.

GFCF at current prices is estimated at Rs 12.75 lakh crore in first quarter of 2018-19 as against Rs 11.20 lakh crore in similar quarter of 2017-18.