 "GDP, growth, fiscal deficit")
After clocking a nine-quarter high of 8.2 per cent rate of growth in Q1 of 2018-19, the Indian economy is likely to slowdown in the quarters ahead. Most agencies, including the government, the World Bank and the International Monetary Fund, have pegged the full-year growth rate at 7.3-7.5 per cent.
In such a scenario, the growth rate in the country's gross domestic product (GDP) in the second quarter is likely to be around 7.2-7.3 per cent. Gross value added (GVA) is likely to grow 7.1-7.2 per cent during the quarter against eight per cent in the first quarter, on lower rate of expansion in the agriculture and manufacturing sector and a marginally higher rate in services. The GDP growth rate may fall despite the service sector's domination of GVA, at around 55 per cent.
The slippage may largely be due to the higher base effect of the second quarter of 2017-18. In the first quarter of the current fiscal, the growth rate was more than eight per cent on a lower base of 5.6 per cent growth in the same period last year, which was due to lingering impact of demonetisation and jitters over the imminent rollout of the goods and services tax (GST). That 5.6 per cent growth rate was the lowest since the fourth quarter of 2013-14 when the economy expanded by just 5.3 per cent.
However, the economy had grown by 6.3 per cent in the second quarter of 2017-18, because of which the growth in Q2 of the current financial year would look small compared to that in the first quarter. The latest numbers are slated to be released on November 30.
If the economy indeed grows by 7.3 per cent in the second quarter, the GDP rate in the first half of the current financial year would turn out to be 7.7 per cent, against 5.9 per cent in the corresponding period in the previous financial year. In any case, the growth rate will have to be 7.2 per cent in the second half of the current financial year, if the economy is to achieve 7.5 per cent for the whole of FY19. If that happens, the growth rate in the second half of FY19 would be lower than 7.3 per cent recorded in H2 of the previous financial year, a prospect which may not sound good for the government in an election year. However, only the third quarter numbers would be available by the time the country goes to polls.
While Devendra Pant, chief economist at India Ratings, pegged the growth rate at 7.3 per cent for Q2 of FY19, Aditi Nayar, principal economist at ICRA, put it at 7.2 per cent. On the other hand, Pant forecast GVA growth at 7.2 per cent and Nayar at 7.1 per cent during this period.
Farm, manufacturing sectors may drag
Agriculture and allied activities grew 5.3 per cent in the first quarter against 4.5 per cent in the fourth quarter of 2017-18 and three per cent in the first quarter of that year.
However, the primary sector might yield just 3-3.5 per cent growth in the second quarter. Mostly horticultural produce is harvested in the second quarter, and kharif crops are sown during this period. According to the first advance estimates of crop production, food grain production is expected to touch a record 141.6 million tonnes in the 2018-19 Kharif season, up from 140.7 million tonnes last year, However, its impact would be seen in the third quarter of the current financial year.
Economic growth in the first quarter of FY19 was primarily driven by manufacturing, which grew by 13.5 per cent against 9.1 per cent in the fourth quarter of 2017-18 and shrank 1.8 per cent in the first quarter of that year.
Sustaining double-digit growth in manufacturing for the second straight quarter may not be possible, and the figure might stand at 7.5 per cent this time around. Against contraction in the first quarter of FY18, manufacturing grew by 7.1 per cent in the second quarter of that year. This itself will make factory value addition look small in Q2 of FY19.
The index of industrial production (IIP), which constitutes about 25 per cent of the industry in quarterly GDP growth data, showed that manufacturing rose 5.5 per cent in the second quarter of FY19 against 5.1 per cent in the first quarter.
The rest of the data would come from company results filed in MCA21 and stock exchanges. While companies in the manufacturing sector have reported an uptick in sales, margins remained subdued. It should be noted that the margin matters more in GDP these days, than simple sales numbers. While revenues rose substantially in some of these companies, net profit growth was subdued, since companies were not able to pass rising input costs to the customers.
Take the automobile sector for instance. Market leader Maruti Suzuki clocked revenue growth at 3.1 per cent, but its net profit declined by 9.8 per cent.
Other auto firms were not even that upbeat. Tata Motors posted a net loss of Rs 10.09 billion accentuated largely by a disappointing show by Jaguar Land Rover. Hero Motocorp, on the other hand, saw net profit declining by 3.4 per cent to Rs 9.76 billion. TVS Motor Company also reported a marginal decline in net profit to Rs 2.11 billion in Q2 this year, against Rs 2.13 billion a year ago.
The FMCG sector, on the other hand, saw improvement in profits, but the pace remained subdued even as ITC and HUL posted double-digit growth in their net profit in Q2 of this year.
Construction is the second biggest sector in the industry, after manufacturing. It posted 8.7 per cent growth rate in the first quarter of FY19 compared to 11.5 per cent in the fourth quarter of FY18 and 1.8 per cent in the first quarter of that year.
However, the second quarter is a period of monsoon when construction activity slows down. Push to infrastructure by the government might tell a different story this time around. Pant pegged construction growth rate at 8.3 per cent for the second quarter, which is quite high given the fact that it grew only 3.1 per cent a year ago.
Infrastructure and construction grew 8.9 per cent in the IIP data in the second quarter of FY19 against 8.5 per cent in the first quarter.
Experts that Business Standard spoke to pegged industry growth at 7.5 per cent in Q2 of FY19 against 10.28 per cent in the first quarter and 0.13 per cent in Q1 of FY18. Mining and electricity generation are the other segments of this sector.
Grey spots in the service sector
The service sector, which plays the biggest role in shaping the economy, is facing loads of issues currently. The largest segments, financial and real estate, are struggling to cope up with bad debts and low demand for houses. However, affordable housing may provide boost to the realty sector in the second quarter. The results that have come in so far show that while HDFC Bank and Axis Bank reported double digit-growth in net profit, ICICI Bank's net profit growth declined in Q2 of FY19 among private sector banks.
Among public sector banks, SBI's net profit declined, while scam-hit Punjab National Bank continued with a net loss due to higher provisioning for bad debts and subdued treasury operations. Canara Bank posted double-digit growth in net profit, but that was mainly due to a tax write-off.
Among the NBFCs, both PNB Housing Finance and Indiabulls Housing Finance posted double-digit growth. DHFL, which trigerred a blood bath at the bourses due to liquidity issues, is yet to come out with its results.
Other segments of the service sector include trade, hotels, transport and communication and broadcasting services and government-supported public administration.
Growth in government-backed services during the second quarter will remain largely intact at 9.9 per cent, as in the first quarter.
Experts pegged overall growth in the service sector anywhere between 7.7 per cent and eight per cent, against 7.3 per cent in Q1.
Expenditure: a mixed bag
So far as the expenditure side of GDP is concerned, the estimation of numbers become complicated due to various proxies used. Experts say that growth in private final consumption expenditure may dip from 8.5 per cent in the first quarter, to 8.4 per cent in the second.
The gross fixed capital formation, on the other hand, that shows the investment rate in the economy may decline from 10 per cent in Q1 to 8.7 per cent in Q2.
In IIP data as well, capital goods production grew at a lower rate of 5.9 per cent in the second quarter of FY19 against 8.6 per cent in the first quarter.
However, the government's final consumption expenditure may witness marginally higher growth than 7.5 per cent in Q1.
