Analysts cheered by Q2 growth in private consumption

Higher consumption expenditure from the government in the form of pay arrears given to its employees contributed to a high GDP growth of 7.9 per cent in July-September, while gross capital formation slowed to a seven-year low of 1.6 per cent. Private sector consumption also showed a 5.6 per cent increase.

Consumption expenditure and capital formation are two components of expenditure on GDP. Public consumption increased by 27 per cent in the second quarter of 2009-10 from 10.2 per cent in the April-June quarter and private consumption also went by 5.6 per cent from a low growth of 1.6 per cent in April-June this year.

“While headline consumption rose 8.4 per cent, led by public consumption up 27 per cent (largely due to the pay arrears), perhaps the most encouraging bit of data was the uptick in private consumption, which rose 5.6 per cent in the second quarter of 2009-10, compared with a dismal 1.6 per cent in the previous quarter,” Citi said in a research note on Monday.

According to Goldman Sachs, the increase in government consumption reflected the significant fiscal stimulus after a pause in the election quarter.