Q2 GDP likely to have grown 4.6%: Consensus estimate

Better industrial & agriculture output to help growth pick up but sustainable recovery unlikely this financial year

Economic growth is estimated to have improved marginally in the second quarter, driven by a very mild recovery in the industrial and agricultural output.

While the consensus estimate suggests the economy would have expanded 4.6 per cent in the quarter ended 30 September, Deutsche Bank has an optimistic estimate of 5.5 per cent, which would be the best in over a year.

Deutsche Bank's chief economist Taimur Baig justifies this number saying there has been a pick-up in industrial and construction sectors, while finance and trade look buoyant.

Even if this estimate sounds too optimistic, the factors cited by Baig are not correct. After the drastic cut-back in public spending in the fourth quarter of the previous financial year, public spending has remained robust in the first two quarters of the current year. With the government breaching 76 per cent of its fiscal deficit target in the first six months is evidence of this spending.

Also, there has been a mild recovery in the industrial output, thanks to rising exports. Industrial growth has grown at an average of 1.73 per cent. Between April and June, industrial output declined by one per cent.

Sonal Varma, Nomura’s India economist, believes agriculture growth at 4.5 per cent and industry expansion by 2.7 per cent may drive year-on-year (y-o-y) growth this quarter, but domestic demand remains weak, which will affect consumption.

Industrial activity on the whole has shown better numbers both sequentially and annually. Steel production has grown by 5.7 per cent y-o-y during the second quarter against 3.1 per cent y-o-y growth during April-June. Cement production also grew by 10.1 per cent in Q2 compared to 3.3 per cent in Q1. This implies the construction sector may clock better growth in Q2 than Q1 of FY14.

However, the recovery is unlikely to be sustainable. Siddhartha Sanyal of Barclays expects GDP growth to expand by 4.6 per cent y-o-y during July-September. “Exports and agriculture have seen a pick-up of late, but we do not see any broad-based turnaround as most other lead indicators continue to be weak. Also, fiscal austerity, expected to kick in towards the end of the year, and high interest rates will impact recovery in the coming quarters.” Overall, any pick up in the economy is now being pushed to the next year, after elections.