In July to September, India's economic growth rate decreased by half to 6.3% due to rising repo rates and a decline in manufacturing output.
According to a press release from the government, "Real GDP or GDP at Constant (2011–12) Prices) in Q2 2022–23 is estimated at 38.17 lakh crore, as opposed to 35.89 lakh crore in Q2 2021–22, showing a growth of 6.3 percent as compared to 8.4 percent in Q2 2021–22.
The reading of the gross domestic product for the three months that ended on September 30 decreased from strong growth of 13.5% in April–June, helped by a favourable base effect as activities during the same period in 2021 were severely restricted by pandemic–control measures. In addition, growth in the second quarter slowed from 8.4% expansion in the same quarter last year.
In contrast to the previous quarter's 5.6% growth, the manufacturing sector shrank by 4.3% in the July-September period. A bit more than the 4.5 percent expansion in the first quarter of the fiscal year, the farm sector expanded by 4.6%.
"It is concerning that the manufacturing sector is contracting. The manufacturing industry has seen ongoing hardships as a result of high raw material costs and an uneven rebound in demand. The drop in corporate profit margins in Q2 also reflected this "CARE Ratings' chief economist, Rajani Sinha, remarked. "Positively, there is an acceleration of more than 3% in Q2 GDP on a sequential basis (QoQ). The services industry, specifically the Trade, Hotel and Transportation segment, which experienced a healthy sequential rebound in Q2, has been driving the economy's growth."
Trade, hospitality, and tourism are contact-intensive industries that had growth of 14.7% compared to a 9.6% increase in the same time of the previous year. Compared to a year before, when the mining industry had grown by 14.5%, it experienced a steep contraction of 2.8%. 6.6 percent growth was recorded in the construction industry between July and September.
The second quarter GDP growth was predicted by analysts and economists to be in the range of 5.8 to 7.2 percent, indicating that the economy will return to "normal" growth and give indicators of its health in the face of the global financial crisis. The growth rate from July to September was estimated by the Reserve Bank of India (RBI) to be between 6.1 and 6.3%.According to a survey by the Economic Times, the median forecast for the quarter from the 10 economists was 6.45%. India Ratings predicted the highest quarterly growth in the ET survey at 7.2%.
As exports slowed down in the second quarter, domestic demand probably played a larger role in supporting growth, according to Radhika Rao, executive director and senior economist at DBS Group Research. Despite this, base effects will slow the headline growth from the quarter before's double-digit pace.
India's growth was 5.6% on a gross value added basis, down from 12.7% in the previous quarter and 8.3% a year earlier. Additionally, GDP growth in the first half of this fiscal year decreased from 13.7% to 9.7% from the same period last year.
Key central banks, including the Reserve Bank of India, had to repeatedly raise policy rates to combat spiralling inflation after Russia's invasion of Ukraine disrupted the global supply chain and boosted fuel prices. While India's rate-setting panel increased rates by 190 basis points since May, it increased rates by 100 bps from July to September, hurting consumer demand.
Retail inflation increased to as much as 7.4% from July to September.
However, India's growth in the second quarter continued to outpace that of its larger neighbour China, which reported a better-than-anticipated 3.9% rise in the period from July to September. China's growth accelerated from a 0.4% gain in April to a 6.3% rise in June thanks to a series of government initiatives. India, the fifth-largest economy in the world, outperformed the US' 2.6% growth rate from July to September, which was a strong recovery after a 0.6% decline in the previous quarter.
According to Chief Economic Advisor Anantha Nageswaran, the Indian economy has continued to recover from the pandemic, and its growth trajectory is impressive when compared to that of other nations in the wake of monetary tightening and shocks to commodity prices at the start of this year.
While Covid-19 distortions have largely subsided, higher holiday demand and high government spending represent another bright spot for future growth. New Delhi increased capital spending during the third quarter of 2018, spending 1.67 trillion rupees, up more than 40% from the previous year. With the impending Christmas and year-end celebrations, the consumption increase that was observed throughout the festival season, which normally starts in September, is probably going to continue.
According to the chief economic adviser, domestic demand is anticipated to propel GDP growth in a volatile external environment. He added that although government consumption is down, capex is still moving up strongly. In the first seven months of this fiscal year, government capital expenditures saw a very strong growth of 49%.It is encouraging that the capital formation rate as a percentage of GDP has remained constant at 34% from the first quarter.
For the current fiscal year, it is anticipated that India will receive about $40 billion in FDI. According to Nageswaran, the current fiscal year's GDP for India is expected to range between 6.8% and 7%."As the external environment would continue to be difficult, the most important factor going forward would be a further increase in the domestic demand scenario. Continued improvement in the scenario for domestic demand would be necessary for the private capex cycle to pick up. In the upcoming quarters, the manufacturing industry should find comfort from the decline in global commodity prices. For the entire fiscal year, we anticipate GDP to grow at 6.9% "Sinha, of CARE Ratings, stated.
