As a sign of relief, Indian economy emerged out of sluggish growth in the first quarter as it grew by 4.8 per cent in the second quarter of the current fiscal compared to 4.4 per cent in the April-June quarter of FY14. GDP grew better due to improved performance of farm, manufacturing, construction and services sectors, although a rise in the fiscal deficit and inflation dampened sentiment.
The July-September period was the fourth successive quarter of economic growth below 5 per cent and compared with 5.2 per cent expansion in the same period last year.
While Finance Minister P Chidambaram exuded confidence that the growth rate will rise to 6 per cent next fiscal, Economic Affairs Secretary Arvind Mayaram said the third and fourth quarters will see a pick up to help attain at least 5 per cent growth for the fiscal.
The recovery in the July-September quarter was dampened by an increase in retail inflation for industrial workers to 11.06 per cent, strengthening the Reserve Bank’s case for an interest-rate hike to fight rising prices.
Stating that there were “no quick fixes” for taming prices, Chidambaram said inflation has got entrenched and monetary policy has little impact on it.
While the Finance Minister has said the “red lines” on fiscal deficit will not be breached, the difference between Government receipts and spending touched `4.57 lakh crore, or 84.4 per cent of the budget estimate, in the first seven months of the current fiscal.
The rupee weakened 0.1 per cent to 62.4487 per dollar while the 30-share Sensex rose 1.3 per cent.
Recovery in Asia’s third-largest economy has been wobbly as the RBI raised interest rates to curb inflation. There are expectations of another hike at the central bank’s next review due on December 18.
Blaming the growth slowdown on global factors, Prime Minister’s Economic Advisory Council Chairman C Rangarajan said, “I am optimistic that the second half will be spurred along by increased manufacturing, leading to a more stable rupee.” Manufacturing rose 1 per cent during the July-September quarter while agriculture output soared 4.6 per cent. Growth in the mining sector, however, fell 0.4 per cent.
The retail inflation rate for industrial workers rose to 11.06 per cent in October from 10.7 per cent in the previous month on higher food and electricity prices.
The fiscal deficit, which stood at 71.6 per cent of the budget estimate in April-October of 2012-13, climbed to 84.4 per cent this year.
The deficit excludes subsidies the government will have to pay for selling diesel and cooking fuels below cost.
As much as `45,000 crore of the fuel subsidy to be paid this fiscal will be carried over to the next year as all budgetary provisions have been exhausted in the first six months.
As per official data, net tax receipts for the first seven months of the fiscal year touched `3.56 lakh crore, while total expenditure was `9.22 lakh crore.
Tax revenue collection slowed down to 40.3 per cent of the budget estimate (`8.84 lakh crore) as against 43.3 per cent in the previous fiscal.
Analysts also welcomed the better Q2 GDP readings of 4.8 per cent.
“We expect a more sustained growth uptick after Q3 once political stability has been established and aided also by steady export growth. We expect GDP to average at 4.7 per cent in FY14, down from 5 per cent in FY13, before it picks up again to 5 per cent,” foreign brokerage Nomura said.
Its counterpart HSBC said the data “has a positive surprise and suggests that underlying growth conditions are not as weak as previously feared.”