The Indian economy is likely to grow at 7.6% in the second quarter (July-September) of the ongoing financial year (FY16), expects India Ratings and Research. The economy grew poorly at 7% in the first quarter. The official figures of the second quarter GDP growth are expected on Monday. While growing at 7.6% makes India the fastest growing large economy in the world, it still fails to satisfy the domestic expectations. Despite the fact that India has a higher growth potential, in the overall depressed global environment, “growing at 7.5% also needs to be appreciated,” says Sunil Sinha, principal economist, India Ratings and Research. Emerging economies in the world are struggling to grow even at meager 5%.
In view of the sub-par monsoon, the agency expects agriculture to grow at 0.5% as compared to about 2% growth in the first quarter. The industrial growth is likely to be higher at 6.9% while services growth is expected to be steady at 9.4%. The encouraging part on agricultural front is that despite the monsoon shock, the total sown area under kharif crop (April-October 2015) has shown improvement. Similarly, manufacturing sector IIP, a significant segment of industrial growth, has grown by 4.6% in the second quarter (FY16) which is the highest quarterly growth since the first quarter of FY12.
While 7.6% may look respectable to some but it has failed to impress popular aspirations. People and businesses are disappointed with this rate of growth as it has failed to bring any meaningful change in their economic life. Salaries, for a vast majority of people, are still to increase and jobs for aspiring youths are yet to be created in the required numbers. While lower commodity prices have helped India to control its external deficits and has brought down the quantum of imported inflation, “the lack of demand in our economy is restraining us to take full advantage of lower commodities prices,” says Sinha. So, even when sales are not picking up due to the lack of desired demand in the economy, lower input costs are at least helping companies to make some profits. Analysts say that this lack of demand in the global sphere and our economy is the bigger worry.
About 25% of India’s growth is owed to exports but depressed global demand has reduced our exports in the past one year. With the uncertainty in the global economy persisting for some more time, economists feel that India needs to innovate ways to boost its domestic demand. While taxation relief might play a big role here, the passage of the GST Bill would bring in the desired level of investment in our economy.