Economy rebounds in Q2FY18

INDIA’S ECONOMY rebounded in the second quarter of the current financial year (Q2FY18), with gross domestic product (GDP) growing at 6.3 per cent, up from 5.7 per cent in the previous quarter. Gross value added (GVA), which excludes product taxes and subsidies, grew by 6.1 per cent in Q2, as shown in Chart 1. It had grown by 5.6 per cent in Q1.

Core GVA, which excludes agriculture and public spending, grew by 6.8 per cent in Q2, up from 5.5 per cent in Q1, suggesting that the disruption in economic activity due to demonetisation and the goods and service tax (GST) is dissipating. Core GVA had plunged to a low of 3.8 per cent in Q4FY17 (Chart 2).

The rebound in economic activity was driven by manufacturing, which, as shown in Chart 3, grew by seven per cent in Q2, up from 1.2 per cent in Q1. This upsurge is presumably due to the effect of the GST waning, with companies ramping up production to meet festive demand.

But both agriculture and services slowed in Q2. As shown in Chart 4, the services sector grew at a slower pace in Q2 than in Q1. Agricultural growth also slowed in the second quarter (Chart 5).

On the expenditure side, as shown in Chart 6, both public and government spending slowed in Q2. But gross fixed capital formation grew by 4.7 per cent in Q2, the fastest growth in the past five quarters, as shown in Chart 7. But, as a percentage of GDP, it declined to 28.9 per cent in Q2FY18, down from 31 per cent in Q1FY17.