Economic growth slowed in the July-September quarter, dragged down by a sluggish manufacturing sector and triggering calls from India Inc to cut interest rates and step up reforms to boost growth.
Data released by the Central Statistics Office (CSO) on Friday showed growth slowed to 5.3%, slower than the 5.7% in April-June quarter but marginally better than 5.2% growth in the second quarter of 2013-14. Growth in the first half of the 2014-15 was at 5.5% compared to 4.9% in the same period in 2013-14.
Economists said they expect a slow and gradual recovery in the months ahead as investments are yet to pick up. The finance ministry said the second quarter growth numbers were "broadly on expected lines." The ministry said slower growth in the farm sector was expected due to the lower-than-expected monsoon, while the slower expansion in the manufacturing sector was not surprising.
"It may be mentioned that the Economic Survey 2013-14 had predicted that the growth of GDP to be in the range of 5.4% to 5.9%. In the first half of the year, the growth has been 5.5%, which is broadly in line with the projections as well as the expectations," the ministry said in a statement.
India Inc stepped up calls for cutting interest rates and accelerating reforms.
"Looking ahead, in order to steer our economy to the path of growth and ensure that we move towards a sustained recovery, there is need for continuing with proactive policies, which would help revive investments and address the bottlenecks plaguing the agriculture and industrial sectors," said Chandrajit Banerjee, director-general at CII. "At the same time, the RBI should review its status quo approach and move towards paring interest rates in its forthcoming monetary policy to give a fillip to recovery both through higher consumption spending and opening up channels for investment."
RBI governor Raghuram Rajan is expected to meet FM Arun Jaitley on December 1, a day ahead of the policy review. The FM is expected to renew calls for moderating interest rates to boost growth and revive investment.
Rajan is under pressure to cut rates against the backdrop of slowing inflation and some improvement in the government's fiscal situation due to easing of global crude prices.
The Narendra Modi government has vowed to boost growth and tame inflation. While it has managed to tackle price pressures, thanks to softening in global crude oil prices and steps taken by the administration, it will need to give a major push to manufacturing to jumpstart investments and rescue growth from two consecutive years of sub 5% expansion.
Economist said they expect growth in 2014-15 to be in the 5.5-5.7% range due to measures taken by the government and expected steps in the months ahead. "Despite the deceleration in second quarter GDP growth, we maintain our view of FY15 GDP at 5.6% as the risks are fairly balanced with the upsides —reforms momentum picking up post the assembly polls, sharp decline in inflation opening the space for monetary easing and continued de-bottlenecking of stalled investments by PMG (project monitoring group)," Citigroup India economist Rohini Malkani said in a note.
"This however could be offset by likely cuts in fiscal expenditure in fourth quarter to meet fiscal targets and deceleration in exports to Europe/China," she said.
The data showed the manufacturing sector continued to remain sluggish, rising 0.1% in the September quarter compared with a 3.5% expansion in the previous quarter. The farm sector grew 3.2% in July-September compared with 3.8% in the April-June quarter. The services sector, which accounts for nearly 60% of the economy, showed signs of a pick-up, rising 7.1% in the September quarter compared to 6.8% expansion in the previous quarter.
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