July-September GDP growth likely at 7.4%: VCCircle poll
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India's economic growth likely accelerated in the second quarter of this fiscal year from the previous three months but the pace remained far slower than the government's target, a VCCircle poll of economists showed.

Gross domestic product (GDP) for the July-September period is estimated to have grown 7.4 per cent from a year earlier, according to the median forecast of 10 economists. The predictions ranged from 7.2 per cent to 7.6 per cent.

The government will release second-quarter GDP data on Monday.

In comparison, GDP had expanded 7 per cent in the first quarter this fiscal year and 8.4 per cent in the July-September period of last fiscal year.

First-quarter data had shown the Indian economy was far away from a robust recovery and had given a jolt to the government’s target of 8 per cent to 8.5 per cent growth for the current fiscal year. Data for the second quarter will likely add on to the pressure on the government.

Over the past two months a number of international organisations and ratings firms have slashed their forecast for India's GDP growth for this fiscal year, due partly to global economic concerns. 

The International Monetary Fund had trimmed India’s GDP growth estimate to 7.3 per cent from 7.5 per cent last month, while the Asian Development Bank had cut its prediction for 2015 to 7.4 per cent from 7 per cent.

Even the Reserve Bank of India, in its last monetary policy statement, had trimmed its projection to 7.4 per cent from 7.6 per cent.

India’s economy grew 7.3 per cent in 2014-15, according to data released earlier this year when the government tweaked the methodology for calculating GDP and changed the base year to 2011-12. 

However, other macroeconomic data over the past few months show the economy is struggling to come out of a slowdown. Exports, for instance, have declined for 11 months in a row through October due to muted demand from major developed markets.

Sectoral growth

All economists predicted strong expansion in the manufacturing sector that pushed overall industrial growth higher in the second quarter.

Jay Shankar, chief India economist at Religare Securities, said manufacturing grew 4.6 per cent in the second quarter, its fastest pace in four years, led by double-digit growth in production of capital goods and consumer durables. 

India's GDP had grown 8.4% in the second quarter of last fiscal year

Mining activity also picked up while output of crude oil and natural gas grew after six quarters of decline. Overall industry growth is expected to have risen to 7 per cent in the second quarter from 6.5 per cent in the first, he said.

The uptick in industry will be a relief for the government, which has been pushing for domestic manufacturing under its Make in India initiative.

While the services sector, which makes up more than half of GDP, is likely to record a mild uptick in the second quarter, farm growth will be a concern. 

Although the share of agriculture in the economy is low, the sector employs more than two-thirds of the population and poor performance can pose problems to the government's growth target.  

According to India Ratings and Research, farm growth in the second quarter is likely at 0.5 per cent due to below-par monsoon rainfall. It said that, although agriculture has become more resilient to monsoon shocks over the years, farm output in a large part of India still depends on the seasonal rainfall. 

Silver lining

With the RBI cutting interest rates four times this year as inflation eased, consumption and investment in the economy are likely to improve in coming months. 

Consumption activity is also likely to get a boost from a planned pay hike for government employees next year. Earlier this month, the seventh pay commission recommended a 23.5 per cent hike in salaries and allowances of central government employees.

Another factor going in favour of the Indian economy is lower commodity prices. While poor export numbers are a cause for concern, a drop in India's oil import bill will help keep the current account deficit under control. 

Ratings firm ICRA expects India's current account deficit to ease to less than 1 per cent of GDP in 2015-16 from 1.3 per cent last fiscal year.

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