India's Economy Beats Expectations with 7.6% Q2 Growth

India’s gross domestic product (GDP) grew 7.6 per cent in the second quarter (July to September) this financial year, significantly faster than the official estimate of 6.5 per cent made in October.

The Ministry of Statistics and Programme Implementation released the GDP data for the second quarter as well as the first-half of the financial year Thursday. Coming on the back of a 7.8 per cent growth in Q1, the second quarter’s figures propelled India’s growth in the first half (April-September 2023) to 7.7 per cent.

Construction, Manufacturing & Mining Drive Growth

The second quarter growth was driven by double-digit boosts in three key sectors — mining, manufacturing, and construction. The mining and quarrying sector grew 10 per cent in Q2, up from 5.8 per cent in Q1. However, this strong growth was enabled by a low base in Q2 last year, when the sector contracted 0.1 per cent.

Similarly, the strong showing by the manufacturing sector (13.9 per cent in Q2 vs 4.7 per cent in Q1) was on the back of a 3.8 per cent contraction in Q2 last year.

In this regard, the construction sector has emerged as an outlier, growing in double digits — 13.3 per cent in Q2 versus 7.9 per cent in Q1 — despite a relatively strong growth in Q2 last year of 5.7 per cent. This is likely the lasting impact of the government’s ongoing infrastructure-building push.

Other Sectors Show Mixed Results

Utility services such as water, electricity, and gas grew 10.1 per cent in Q2 of this year, up from 2.9 per cent in Q1 and 6 per cent in Q2 of the previous year.

On the other hand, growth in the agriculture sector slowed to 1.2 per cent in Q2 — likely due to the erratic rains in the country — from 3.5 per cent in Q1 and 2.5 per cent in Q2 of last year.

Similarly, the grouping of trade, hotels, transport, and communication sectors saw growth slowing to 4.3 per cent in Q2, down from 9.2 per cent in Q1 and 15.6 per cent in Q2 of last year.

Implications for the Economy

The government’s contribution to the GDP growth is further apparent as the share of gross fixed capital formation to the GDP — which measures how much asset creation contributes to it — grew to 35.3 per cent in Q2 from 34.7 per cent in Q1.

Notably, however, the share of private final consumption expenditure — a measure of the spending people do — fell to 56.8 per cent from 57.3 per cent in Q1 and significantly lower than the 59.3 per cent seen in Q2 of last year.

India’s economy grew at a robust 7.6 per cent in the second quarter (July-September) of the year, surpassing the most optimistic expectations. Most economists had pegged growth at between 6.5-7 per cent. In fact, even the Reserve Bank of India had projected the economy to grow at 6.5 per cent in its October monetary policy committee meeting. But beyond the headline growth number, the trends that emerge from the disaggregated sector-wise data require closer examination.

One, the agricultural sector has fared poorly. Growth has slipped from 3.5 per cent in the first quarter to 1.2 per cent in the second quarter. That the outlook for the sector isn’t promising for the second half of the year as well will have implications for rural demand. 

Two, the industrial sector (including construction) has fared much better. It grew at 13.2 per cent in the second quarter, up from 5.5 per cent in the first quarter, buoyed by a favourable base effect, and healthy growth in manufacturing. 

The manufacturing sector grew by 13.9 per cent, up from 4.7 per cent. As per a report by economists at the Bank of Baroda, even as sales growth was subdued, corporate profitability increased in the second quarter, in part due to lower commodity prices. Construction has also fared well, growing by 13.3 per cent. 

Alongside, data released on Thursday showed that the index of eight core infrastructure sectors (including steel, cement and electricity, among others) grew on average at 10.5 per cent during July-October, up from 6.1 per cent during April-June. Three, the services sector has slowed down. It grew by