GDP growth at 5.3% was a pleasant surprise to the market.
From one point of view, the joy of having a better than expected growth in agriculture may be short-lived.
However, On first count, the data does not explain ground realities. Agriculture, for example expanded by 3.2% in Q2, even as Kharif output has declined markedly. This means, that Kharif output will see an upward revision later or will be adjusted in the Q3 data.
From that point of view, the joy of having a better than expected growth in agriculture may be short-lived.
As far as Services sector is concerned, the uptick is explained by a significant upturn in Community, Social & Personal segment, a part of which may be explained by increased government expenditure in Q2 on factors like natural calamities (J&K floods, for example).
With Government expenditure contracting significantly in Q3, this segment may soon revert to a lower growth. All in all, the good thing regarding the data is perhaps the first half GDP growth that now stands at 5.5%. This means that with a little bit of luck we could log in a growth rate closer to our estimates (SBI at 5.78%).
In other related development, the abolition of restriction on gold import by RBI is a positive and it will reduce the smuggling and the loss I revenue to Government exchequer (annualized at Rs 60,000 crores). With the Government also tweaking with the labour law, all this portends to greater traction ahead.
By Dr Soumya Kanti Ghosh, Chief Economic Adviser & GM, Economic Research Department, State Bank of India.