ET Explains: What went incorrect with the Q2 GDP progress

The second quarter financial progress plummeted to Four.5 per cent within the second quarter, in step with economists’ prediction that the Q2 GDP print will are available in between Four.2-Four.9 per cent.

A extra disaggregated studying, although, has much more to inform than the headline quantity.


A granular take a look at the official launch will inform us the state of producing is in disarray. All lead indicators pointed to a dismal manufacturing progress. It collapsed within the second quarter, contracting by 1 per cent in comparison with a 6.9 per cent progress in the identical interval final 12 months — a telltale signal of what is coming.

Manufacturing maelstrom
The index of commercial manufacturing confirmed contraction within the months of August and September, led by contraction within the manufacturing sector.


Manufacturing progress has remained subdued within the 2.Eight-Four.6 per cent vary from 2014-15 to 2018-19. For India’s financial progress to cross the Eight per cent mark, India’s manufacturing sector ought to develop in double digits.

Mfg growth 123

The slowdown witnessed in demand for durables and non-durables is a testomony to the weak spot in manufacturing. Trade is banking on a turnaround within the second half, which they hope will assist offset among the losses suffered within the first half.

The festive gross sales together with the measures taken by the federal government will replicate within the numbers for the third quarter. Auto sector confirmed slight uptick in gross sales within the month of October. Nevertheless, the momentum was misplaced within the very subsequent month. The weak spot in key infrastructure industries continued within the month of October with core sector output shrinking by 5.Eight per cent.

Heavy lifting
The general share of investments within the financial system has proven a constant decline through the years. The second-quarter GDP figures present that the investments grew by only one per cent in comparison with 12 per cent progress in the identical interval final 12 months.

The federal government’s large booster shot of company tax minimize might spur investments going into the second half. Economists, although, desire a extra direct intervention on the a part of the federal government by means of ramping up capital expenditure. That, nevertheless, could also be barely tough for the federal government because it has already crossed the total 12 months fiscal deficit goal within the April-October interval.

It is already struggling to raise its revenues as tepid tax collections are more likely to throw fiscal deficit targets off steadiness. Solely a strong disinvestment kitty might save the govt. from any important fiscal slippage.

In the meantime, the federal government might take some consolation in the truth that non-public demand confirmed some enchancment within the second quarter, going as much as 5 per cent from Three per cent within the earlier quarter. However it was a far cry from final 12 months’s 9.Eight per cent.

GDP growth
Sectoral laggards

A broad-based sectoral slowdown dragged financial progress down. Key infrastructure sector like building additionally witnessed weak spot within the second quarter.

Building GVA slowed to three.Three per cent in second quarter from Eight.5 per cent a 12 months earlier. Speedy approval to key infrastructure tasks, clearance of previous funds to non-public contractors together with land acquisition reforms will pace up the development progress.

RBI coverage

All eyes are actually on the upcoming RBI coverage meet on December Three-5. Whether or not or not will the central financial institution go for a sixth consecutive charge minimize — in gentle of shopper inflation inching as much as Four.62 per cent within the month of October — is one thing to be appeared for.

The constant fall in core inflation and a sagging progress will play on the MPC’s thoughts because it deliberates over the state of the financial system. RBI Governor Shaktikanta Das, prior to now, has proven concern over falling core inflation.

Union Price range
Earlier than the third quarter numbers are launched, the federal government will current the Union Price range. Expectations are operating excessive that the govt. could announce a tax rejig giving some aid to the taxpayers.

The federal government, nevertheless, has denied such stories on varied events. Additionally, careworn funds forged a shadow over such plans.

The third quarter holds the important thing to a extra definitive evaluation of how deep the slowdown is and what different steps are wanted to tug the financial system out of it.