GDP slows but acceleration is around corner

FIRST QUARTER BLUES Monsoon, festive spend to bring back the sparkle

NEW DELHI: India’s economy expanded at 7.1% during April to June, the slowest in six quarters, but hopes of faster growth stayed afloat on bountiful summer rains, pay bonanza for government employees and festive season buying in the coming months.

Growth of real or inflationadjusted gross domestic product (GDP) — the value of all goods and services produced in the country — moderated sharply from 7.9% in January to March and from 7.5% in April-June 2015, national income data released on Wednesday showed.

Despite the slowdown, India remains the world’s fastest growing major economy, ahead of 6.7% growth in China that is battling an industrial deceleration.

The manufacturing sector grew 9.1% during the quarter from 7.3% in the same quarter of the previous year and 9.3% in January to March.

The construction sector expanded at a sharply slower pace of 1.5% in April-June from 5.6% in the same period of 2015 and 4.5% in January to March 2016. The latest data came out on a day when the government cleared measures to revive construction and real estate sectors, easing rules for quicker dispute settlement of disputes, make more funds available and hasten implementation of stalled projects.

Farm income grew at 1.8% during April-June this year, from 2.6% in the same quarter of 2015 and 2.3% in January-March 2016.

Plentiful summer rains this year, however, will likely raise farm income, necessary for overall growth.

When rain-dependent farm output is robust, rural income and therefore spending on almost everything — television sets to gold — goes up. This creates demand for manufactured goods, which, in turn, helps the broader economy.

For example, 48% of all motorcycles and 44% of TV sets are sold in rural India. Greater demand on this front will help faster industrial growth.

The government will also be hoping that the recently announced hike in salaries and pensions of 4.8 million central government employees and 5.5 million pensioners will potentially set off a cycle of spending and investment, with people expected to use higher incomes to buy cars and houses.

Passenger vehicle sales have risen for the 13 months in row and could rise further in as such spending usually peaks during the festival months of October and November.