Better-than-expected Farm sector growth at 2-year high

Agriculture growth rises to a nine-quarter high on the back of above-normal monsoon and record kharif production in oilseeds and cotton. Industry sector, a laggard in the last few quarters, grew 2.4% as manufacturing and construction picked up pace

sharp squeeze in govt expenditure in the second half to contain fiscal deficit could hold back the growth recovery

India's gross domestic product growth rose to 4.8% in Jul-Sep on the back of a smart pickup in agriculture and industry sectors, the Central Statistics Office said. This is the fourth consecutive quarter in which the Indian economy has grown below 5%, but is an improvement on the 4.4% growth clocked in the first quarter of 2013-14 (Apr-Mar).

India's GDP had grown 5.2% in Jul-Sep quarter last year. The GDP growth in Jul-Sep is mostly in line with expectations. A Cogencis poll had projected the economy to grow 4.7% in the quarter.

The growth in the quarter is primarily driven by agri- culture sector, which grew 4.6% in Jul-Sep, compared with 2.7% in the previous quarter and 1.7% a year ago.

The agriculture sector growth rose to a nine-quarter high on the back of above-normal monsoon and record kharif production in oilseeds and cotton. The southwest monsoon, which is crucial for Indian agriculture, was 6% above normal this year.

The industry sector, a laggard in the last few quarters, improved in Jul-Sep, growing 2.4%, sharply higher than 0.2% in Apr-Jun and 1.3% a year ago. Within industry, manufacturing, utilities and construction picked up in Jul-Sep, while mining sector output contracted at a lower pace.

The services sector, which nearly accounts for 60% of India's GDP, continued to slow down. The services sector grew 5.9% in Jul-Sep compared with 6.6% in AprJun and 7.6% a year ago.

Within services, growth in community, social and personal services moderated sharply in Jul-Sep to 4.2% from 9.4% a quarter ago, while financial services and real estate growth improved to 10.0% from 8.9% in Apr-Jun.

"The components of GDP growth are encouraging as financial services have picked up and community services group has declined, suggesting that there has not been the kind of fiscal prop up as witnessed in the last quarter," HDFC Bank Chief Economist Abheek Barua said.

"The growth has been driven by private expenditure," Barua said. This was evident in the demand side as well. According to GDP at market prices, government consumption contracted 1.1% in Jul-Sep compared with 10.5% expansion in the first quarter. Growth in private consumption improved to 2.2% in Jul-Sep from 1.6% a quarter ago.

"Today's GDP print was a positive surprise and suggests that underlying growth conditions are not as weak as previously feared," HSBC said in a report.

The finance ministry has been insisting that the measures taken by the government will start showing up in GDP from the second half. "I believe that going forward, in third and fourth quarters, you would see a pick-up. (Growth in) Fiscal would be upwards of 5%," Economic Affairs Secretary Arvind Mayaram said after the GDP data was released. However, a sharp squeeze in government expenditure in the second half to contain fiscal deficit could hold back the recovery.

Finance ministry has been saying that it will contain fiscal deficit within the targeted 4.8% of GDP even if it has to cut expenditure.

Rupa Rege Nitsure, chief economist, Bank of Baroda, said, “Growth in the secondhalf will depend a lot on how the rabi crop pans out. Growth in the second half will also depend on how much time the stalled projects take to come into effect.”

Apr-Oct tax mop-up at Rs 5.322 trln

The government's tax collections in Apr-Oct rose 9.3% on year to 5.322 trln rupees, the Controller General of Accounts said. The growth in tax collections during the first seven months of the fiscal year was sharply lower compared with 19.2% growth projected in the Budget for the whole of 201314 (Apr-Mar).

The tax mop-up growth was on the lower side mainly because of a fall in excise collections, which declined 7.0% to 743.86 bln rupees. Income tax collection rose 19.8% on year to 1.145 trln rupees in Apr-Oct, while corporation tax mop-up increased 9.8% to 1.683 trln rupees. The net tax collections in Apr-Oct increased 6.8% to 3.57 trln rupees.

Total tax collections in October rose 19.6% on year to 740.5 bln rupees. -Cogencis