With the Q2 GDP growth inching up to 4.8% from 4.4% in Q1, the big question is whether the economy has really bottomed out or not. A dissection of the various components of GDP presents a mixed picture. A bountiful of monsoon boosted agricultural growth to 4.6% in Q2 from 1.7% a year ago and there is a probability that farm sector ends with 5%-plus growth in all of FY14. While industrial growth rebounded to 2.3% in Q2 on the back of a surge in exports due to rupee depreciation and not much due to domestic demand, it remains to be seen whether the momentum continues in next two quarters of FY14. After a decline in Q1, manufacturing growth crawled up by 1% and mining still remains in the red. The only solace is a higher 7.7% expansion in electricity, gas and water segment buoyed by robust hydro-power output after a heavy rainfall this year. Construction also picked up in Q2 presumably because of pre-poll developmental works. What's worrisome is the sharp slowdown in the services growth to 5.9% in Q2 compared with 6.6% in Q1 and 7.6% in the same period a year ago.
Looking from another angle, the main problem with GDP is the subdued consumption demand and investment. Private consumption expenditure has grown by 10% in Q2 compared with 12.3% a year ago, signalling feeble demand and a bleak economic prospect for the short-term. The government has tried to stimulate demand by front-loading expenditures in Q1 but it didn't quite help in economic recovery. In Q2, the government expenditure grew by 8.4%, as compared to 16.8% a year ago as a widening fiscal deficit prompted the Centre to tighten its purse string. The main problem is with the private sector, which has staggered investmentthe gross fixed capital formation grew 7.7% in Q2 as compared with 7.5% a year ago and over 10% in second half of FY13. The outlook for FY14 remains bleakgrowth could at most be in the range 5-5.5%.