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India Q2 GDP Growth at 4.8 -VRK100-29Nov2013

India Q2 GDP Growth at 4.8 -VRK100-29Nov2013

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India's Q2 GDP growth rate is at 4.8%. RamaKrishna Vadlamudi, Hyderabad, analyses the main drivers of the better than expected growth rate. What are the prospects of Indian economy?
India's Q2 GDP growth rate is at 4.8%. RamaKrishna Vadlamudi, Hyderabad, analyses the main drivers of the better than expected growth rate. What are the prospects of Indian economy?

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Published by: RamaKrishna Vadlamudi on Nov 29, 2013
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06/09/2014

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Rama Krishna Vadlamudi, HYDERABAD 29 November 2013
www.ramakrishnavadlamudi.blogspot.com
India Real GDP Growth (Qtr) %
5.1 5.45.24.7 4.84.4 4.80.01.02.03.04.05.06.0Q4: 2011-12 Q1: 2012-13 Q2: 2012-13 Q3: 2012-13 Q4: 2012-13 Q1: 2013-14 Q2: 2013-14http://ramakrishnavadlamudi.blogspot.in/ 
 
 Note: Base year 2004-05, Real GDP at factor cost at constant prices.
 India’s second quarter GDP growth has grown by 4.8 percent as against  5.2 percent in the corresponding quarter of previous year. The second quarter growth during the July-September 2013 period has been led by economic activities, such as ‘finance, insurance, real estate & business services,’ ‘agriculture,’ ‘construction’ and ‘electricity, gas & water supply.’ The second quarter growth indicates a slight pick up in GDP growth rate as compared to 4.4 percent growth rate clocked in the first quarter of the  financial year 2013-14.
 As the above graph indicates the quarterly growth rates have slumped to less than 5 percent in the last four quarters. Such sub-5 percent growth rates are for the first time in more than a decade. Indian economy experienced very high growth rates of 7-9 percent between 2003-04 and 2010-11. Since the second quarter of 2011-12, the growth rates have been declining at a steady rate, caused by various factors, notably, dogged inflation pushing up interest rates, debacle in manufacturing sector following policy bottlenecks, fall in foreign investment, concerns about fiscal and current account deficits, and bungled investment climate. Now let us see what are the main contributors to the slight pick up in the GDP numbers and what the future holds for the Indian economy’s growth prospects.
 
 
Rama Krishna Vadlamudi, Hyderabad 29 November 2013 www.ramakrishnavadlamudi.blogspot.com
Page 2 of 4
Main Drivers for the 4.8 percent Growth:
Q2 growth rates (y-o-y) *
Jul-Sep 2012-13 Jul-Sep 2013-14
% growth ^ % growth ^
A. Services 7.1 5.8
1. Construction 3.1 4.3 2. Trade, hotels, transport & communication 6.8 4.0 3. Finance, insurance, real estate & business services 8.3 10.0 4. Community, social & personal services 8.4 4.2
B. Industry 0.5 1.6
1. Mining & quarrying 1.7 -0.4 2. Manufacturing 0.1 1.0 3. Electricity, gas & water supply 3.2 7.7
C. Agriculture & Allied Activities 1.7 4.6 D.Total GDP (A + B + C) 5.2 4.8
* Base year 2004-05, ^ Over corresponding quarter of previous year
1. Finance, insurance, real estate & business services:
 This activity has clocked a growth rate of 10 percent topping the list.
2. Agriculture:
 Led by robust monsoon this year, agriculture grew by 4.6 percent as against 1.7 percent last year. In this Kharif season, oilseeds grew by 14.9 percent, while coarse cereals and pulses grew by 4.9 and 1.9 percent respectively.
 3. Construction:
 It has grown by 4.3 percent compared to 3.1 percent last year. Cement output registered a growth rate of 5.9 percent, while steel consumption grew by 1.3 percent.
4. Electricity, gas and water supply:
 Its growth has gone up by 7.7 percent as against 3.2 percent last year.
 5.
 The worst performing contributors are ‘mining & quarrying’ and ‘manufacturing.’
6. In the Services sectors:
 In Railways, cargo traffic grew by 3.7 percent, but passenger traffic contracted by 2.5 percent. Sale of commercial vehicles slumped  by a massive 22.1 percent, while passengers handled by civil aviation grew by 12.6 percent in the second quarter.
 
 
Rama Krishna Vadlamudi, Hyderabad 29 November 2013 www.ramakrishnavadlamudi.blogspot.com
Page 3 of 4
Private and Government Consumption (at market prices):  As indicated by the estimates of expenditures on GDP, private consumption growth during the second quarter is somewhat muted. Private final consumption expenditure (PFCE) rates at constant (2004-05) prices are 59.8 percent in Q2 of 2013-14 as against 61.8 percent in Q2 of 2012-13. Government consumption growth during the second quarter has declined. Government final consumption expenditure (GFCE) rates at constant (2004-05) prices are 10.3 percent in Q2 of 2013-14 as against 11.0 percent in Q2 of 2012-13.  What does the future hold for Indian Economy? GDP growth rate in the second quarter at 4.8 percent is a tad better than 4.4 clocked in the first quarter of this financial year, but lower than 5.2 percent achieved in the second quarter of last financial year. While the government’s estimated figures for the full year are indicating more than 5 percent GDP growth, others indicate sub-5 percent figures for the entire fiscal year 2013-14. The first half-yearly growth rate is 4.6 percent. To achieve a minimum of 5 percent for the full year, the second-half growth should be at least 5.4 percent.
Half-Yearly GDP Growth Rates %
First half Second half 2009-10 7.6 9.5 2010-11 9.1 9.6 2011-12 7.0 5.5 2012-13 5.3 4.7 2013-14 4.6
 As the above table shows, in the last two years, the second-half growth rates are much less than the first-half growth rates—these two years have shown declining growth trends for the economy. But in 2009-10 and 2010-11, the second-half rates are much better than first-half figures—interestingly in these two years growth rates have been on the upswing.  While inflation and fiscal deficit have been two big problems for the Indian economy in the past five to six years, current account deficit is somewhat under control due to gold import curbs, RBI’s swap windows, FII inflows and rupee strength in the last two to three months. Consumer price inflation (CPI) continues to be above 10 percent, while whole-sale price inflation (WPI) is above 7 percent—negatively impacting the poor and the middle class sections of India. The government (s) have done precious little in

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