Indian economy grew at a better- than-expected rate of 5.3 per cent in July-September quarter on account of improved performance of mining, power and certain services sectors.

The Gross Domestic Growth in the second quarter was better than 5.2 per cent of the same period last fiscal but was slower than 5.7 per cent rate achieved in April-June quarter of current fiscal. There were expectations that September quarter growth would fall to 5-5.1 per cent range.

According to data released here today by the Central Statistics Office (CSO), the economic growth in first half (April-September) of this fiscal was 5.5 per cent as compared to 4.9 per cent in the same period in 2013-14.

The mining sector grew by 1.9 per cent in July-September quarter compared a flat output in same period year-ago. During April-September, the sector grew by 2 per cent compared a contraction of 2 per cent in corresponding period of 2013-14.

However, manufacturing sector recorded a meagre growth of 0.1 per cent in the second quarter of 2014-15 as against a growth of 1.3 per cent in same period of 2013-14. During April-September period, the sector grew by 1.8 per cent compared to a growth of 0.1 per cent in first half of previous fiscal.

Electricity, gas and water supply segment grew by 8.7 per cent in second quarter compared to 7.8 per cent in same period last year. During first half of this fiscal, the segment grew by 9.5 per cent compared to 5.8 per cent in six month period of 2013-14.

The farm sector, which includes agriculture, forestry and fishing, recorded deceleration in growth at 3.2 per cent in second quarter compared to 5 per cent a year ago. During April-September, the sector grew by 3.5 per cent compared to 4.5 per cent in the same period a year ago.

The community, social and personal services sector grew at 9.6 per cent in second quarter compared to 3.6 per cent in the same period last year.

During April-September, the segment grew by 9.4 per cent compared to 6.8 per cent in the six month period of 2013-14.

According to the data, the financial services sector grew at 9.5 per cent in second quarter compared to 12.1 per cent in July-September last year. During April-September, the segment grew by 10 per cent compared to 12.5 per cent in first of half of previous fiscal.

The construction sector expanded 4.6 per cent in second quarter of this fiscal as against 4.4 per cent growth in the year-ago period. In April-September, the sector grew by 4.7 per cent compared to a growth of 2.7 per cent in the first half of previous fiscal.

Growth in the trade, hotels, transport and communications segment also inched up to 3.8 per cent in the second quarter from 3.6 per cent in the same period of 2013-14. During April-September the sector grew by 3.3 per cent compared to 2.6 per cent in the first half of previous fiscal.

Gross Fixed Capital Formation (GFCF), a barometer of investment at current prices is estimated at Rs 8.28 lakh crore in second of this fiscal as against Rs 7.94 lakh crore in second quarter of 2013-14.

At constant (2004-05) prices, the GFCF is estimated at Rs 4.98 lakh crore in second quarter of this fiscal as against Rs 4.97 lakh crore in second quarter of 2013-14.

Government Final Consumption Expenditure (GFCE) at current prices is estimated at Rs 3.43 lakh crore in second quarter of this fiscal as against Rs 2.94 lakh crore year ago.

At constant (2004-05) prices, the GFCE is estimated at Rs 1.63 lakh crore in the second quarter of 2014-15 as against Rs 1.48 lakh crore in Q2 of 2013-14.

According to the first advance estimates of production of foodgrains, oilseeds and other commercial crops for 2014-15 — released by the

Department of Agriculture and Cooperation on September 9 — production of cereals, pulses and oilseeds recorded a decline by 6.6 per cent, 13.6 per cent and 12.2 per cent respectively during the Kharif season of 2014-15 compared to production of these crops in the Kharif season of 2013-14.

COMMENTARY
DEBOPAM CHAUDHURI, CHIEF ECONOMIST, ZYFIN RESEARCH
Slowing government spending and exports during the quarter ending Sep 2014 contributed to this renewed slowdown in economic activity. Hopefully, the RBI would take cues from this in its upcoming policy review meet, although their internal models still foresee a pick-up in inflation in Q4 FY 14-15. Amidst these worrying signals, it is encouraging to note a gradual rise in consumer confidence towards future economic outlook. And if the government is able to effectively manage these expectations, a spending led upward shift in India’s aggregate demand should pave the way for a more sustained economic expansion.

SUJIT KUMAR SINGH, ECONOMIST, UNION BANK OF INDIA
The GDP growth number was supported by agriculture and government expenditure, both of which won’t sustain in the next quarters. We need both fiscal and monetary policy action to revive growth. While government reforms will be quicker in terms of expanding capacity utilisation by companies, monetary transmission works with a lag of two quarters. But one cannot run fast with both hands tied to the back. So we need cost of borrowing to come down, for which interest rates have to be cut, as well as risk premium of doing business has also to come down, which will need government reforms.

UPASNA BHARDWAJ, ECONOMIST, ING VYSYA BANK, MUMBAI
One positive surprise was the agriculture number which has propelled GDP, but going ahead I don’t think agriculture growth is likely to remain at such high levels. At the same time, the government spending which is reflected in the services component of the GDP numbers has also seen significant growth, but I expect that number to also come down given the tight fiscal situations.
So, in short, both the factors which are supporting growth will not be there to propel in the next quarter which is a worry. However, we were not expecting RBI to change its policy stance next week, and these numbers further affirm that. If it was a very, very low number, there would have been prssure on the governor to act immediately. The better than expected overall GDP growth gives him that cushion until the next policy to take a call on rate cuts.

SONAL VARMA, ECONOMIST AT NOMURA INDIA, MUMBAI
GDP growth is largely in line with our expectations (5.4 percent). In terms of the sectoral trends, agriculture growth is quite robust (3.2 percent) considering the weak monsoons and suggests rising share of commercial crops in overall agriculture production.
Industrial growth has moderated in Q3 due to weak manufacturing activity, but this was anticipated. Services sector growth has accelerated led by a pick-up in trade/transportation activity and also increased government spending. On the demand side, consumption accelerated, investment demand slumped and net exports dragged down growth, so the composition is not ideal.
However, leading indicators suggest that India’s business cycle is already on a gradual recovery path and hence we remain positive on the growth outlook. Expect GDP growth at around 5.5 percent in FY15 and 6.5 percent in FY16. No change to RBI view: On hold on Dec. 2.

RUPA REGE NITSURE, CHIEF ECONOMIST, BANK OF BARODA, MUMBAI
If I go by all leading indicators, they suggest credit demand has almost collapsed and corporates are still in wait and watch mode. So maybe the impact of delayed monsoon will be more severely felt in the third quarter GDP numbers. So in my understanding of the underlying currents, growth appears to be in the neighbourhood of 5.2-5.3 percent (2014/15).
RBI will not give much weightage to this factor because they want to institute a credible inflation fighting regime. They have been saying in clear terms that the growth stimulus has to come from the government. They would like to wait and see the trend in global commodity prices because geopolitical factors cannot be taken for granted. They will not take any action hastily now or in the current fiscal year.
Increasingly, their tone will become more dovish. It is likely RBI may go for sector-specific measures to stimulate credit rather than the broad-brush approach of bringing down interest rates.

SHIVOM CHAKRABARTI, SENIOR ECONOMIST, HDFC BANK, MUMBAI
The GDP growth number is slightly better than we expected because of better-than-expected agriculture growth which we do not expect to sustain in the third and fourth quarters. Overall, the economy has bottomed out and there is a slow and modest recovery. Now the onus is on the government to boost growth by reviving investment climate and get reforms moving like passing the land acquisition bill, goods and service tax, insurance bill. That will have a more pronounced impact on growth in the next fiscal year.
A rate cut will help, but given RBI’s aggressive stance to achieve 6 percent inflation by Jan 2016, we expect RBI to cut rates at the earliest in February but the tone of the policy statement on Tuesday will be dovish to build in a case for a rate cut going ahead.

Indian growth slows less than feared, easing pressure for rate cut

(Reuters) A slowdown in India’s economy in the last quarter will increase calls for Prime Minister Narendra Modi to step up reforms but was less severe than feared, giving the central bank ammunition to resist government pressure to cut interest rates.

Gross domestic product expanded 5.3 percent in the July-September quarter from a year earlier, as a manufacturing slump took the bounce out of Asia’s third-largest economy. Growth in the previous quarter was at a 2-1/2 year high of 5.7 percent.
Thanks to growth in services and stronger-than-expected farming after a bad monsoon, the reading was higher than predicted by economists polled by Reuters, who on average forecast growth of 5.1 percent.

“Now the onus is on the government to boost growth by reviving the investment climate and get reforms moving,” said Shivom Chakrabarti, Senior Economist with HDFC bank. “That will have a more pronounced impact on growth in the next fiscal year.”

Worried by the growth performance, and encouraged by low oil prices and falling inflation, Finance Minister Arun Jaitley will reiterate his request that Reserve Bank of India Governor Raghuram Rajan cut interest rates when the central bank holds it policy review on Dec. 2, ministry officials have told Reuters.

Rajan can be expected to argue that with the slowdown not as severe as some forecast, inflation concerns carry more weight.

“If it was a very, very low number, there would have been pressure on the governor to act immediately. The better than expected overall GDP growth gives him that cushion” to wait, said Upasna Bhardwaj, Economist at ING Vysya Bank.

Economists polled by Reuters said a cut was unlikely, although markets have priced in a 25 basis point cut in the repo rate to 7.75 percent.

India is behind China, but among other large emerging economies it fares relatively well. On Friday, Brazil crawled from recession with quarterly growth of 0.1 percent.

CONSOLIDATED POWER
Elected in May with the first single party majority since the early 1980s, Modi was expected to live up to his market-friendly reputation by aggressively pursuing a reform agenda to remove obstacles to India’s industrialisation.

Instead, his government has consolidated power by winning provincial elections to gain control of key states while offering little in the way of substantial new legislation.

The measures Modi has taken so far, including allowing more foreign investment in defence and construction, slashing red tape for businesses and ending major fuel subsidies, have yet to change the mood on the ground.

Poor corporate earnings in the September quarter highlighted weak consumer demand.

The global outlook has not helped, with India’s exports slowing in the second quarter after orders from Europe dropped.

Trends suggest overall growth will likely be at the lower end of the government’s 5.4-5.9 percent target for the fiscal year.

That would be an improvement on the previous two years of sub-five percent growth, the weakest phase since the 1980s, but still far too slow to generate the jobs needed for India’s rapidly expanding workforce.

Reflecting the goodwill and hope placed in Modi, the Indian share market is the best performer in Asia so far this year.
The nationalist premier has the backing of big business, but industrialists are still waiting for signs to convince them to boost spending on plant and machinery.

Data on Friday showed that seven months into the financial year the fiscal deficit is at 90 percent of its full year target as tax income fell short. Jaitley may choose spending cuts to meet his deficit goal, at the cost of further pressure on demand.

The government is hopeful of pushing several more reforms in the next few weeks, including looser foreign investment restrictions on insurance, overhauling land laws and new tax measures, but must overcome opposition in parliament.

This week parliament approved changes to labour laws to loosen regulation on small businesses.

In the new year, all eyes will be on Jaitley’s February budget. Some analysts say markets could turn on the government if it fails to prove its commitment to structural reform.