Economic Growth Just Below Expectation in Q2 But Investment Fall Is Alarming

MUMBAI (Commoditiescontrol) – The Indian economy has grown 7.3 per cent in Q2 of 2016-17 said the Central Statistical Organisation in New Delhi. The data released by the CSO shows that although the growth picked up in the quarter, it was slightly lower than most estimates. However, it is not a disappointment as the trajectory still looks upward, faster than the 7.1 per cent reported for Q1.

Experts fear that the economy is likely to slowdown in the coming quarters, which may push the Reserve Bank of India to cut policy rates by at least 25 bps at its policy review on December 7. Demonetisation will adverse impact on growth in the short-term, which may last up to a quarter or two. But in the long-term run, impact will be quite positive for economic growth, they believe.

Quarter on quarter and year on year comparison shows that excepting public administration, defence and other services, growth in all other sectors were poorer in Q2. This implies that the growth was led by the public sector. The only other sector that was marginal higher is agriculture. It grew 3.3 per cent in Q2 2016-17 as against 2.0 per cent in 2015-16 and 1.8 per cent in Q1 2016-17. The slower growth in manufacturing, mining and electricity is worrisome.

Even more alarming is the decline in investments during the quarter. The future growth largely depend on investment levels in the economy. It appears that future growth has been compromised by increasing consumer expenditure, particularly of government, when they should to be in balance. The gross fixed capital formation declined 5.6 per cent in Q2 this fiscal from its levels a year ago and also marginally down from Q1. The rate of capital formation has dropped thus to 27.1 per cent in Q2 from 31.4 in same quarter last year.

Government final consumption expenditure ballooned 15 per cent in Q2 while private final consumption was up 7.5 per cent. And this latter consumption, will be truncated by the demonetization in coming quarters and silencing future economic growth.

(By Commoditiescontrol Bureau; +91-22-40015522)