India’s gross domestic product grew by 6.3% in the July-September quarter of financial year 2022-’23, the Union Ministry of Statistics and Programme Implementation said on Wednesday. This was a sharp decrease from the 13.5% growth in the previous April-June quarter.
In the corresponding July-September quarter of financial year 2021-’22, the growth rate was 8.4%.
The reason for this slowing growth, experts suggested, was the end of the economic bounceback after the Covid-19 pandemic as well as a contraction in the manufacturing and mining sectors.
The fact that growth has halved compared to the first quarter of this fiscal year has raised concerns about the state of the Indian economy.
Base effect fades
As observers noted, the slowing of growth was expected in this quarter. The numbers were in line with the projections of 6.1% to 6.3% made by the Reserve Bank of India earlier this month, and slightly better than the 6.2% growth rate Bloomberg and Reuters surveys had predicted.
The Union government’s Chief Economic Adviser V Anantha Nageswaran explained that the slowing of economic growth had been expected due to the fading away of the base effect: the growth figures from the previous quarter were usually high because they were being compared to the weaker economic activity during the pandemic.
Now, the pent-up demand as a consequence of pandemic-triggered disruptions and lockdowns has begun fading, while higher inflation restricted consumer spending during the July-September quarter.
“We are observing normalisation in growth rates compared to the previous quarter due to waning Covid effects,” The Telegraph quoted Ritika Chhabra, an economist at Prabhudas Lilladher, as saying.
The numbers confirm that India’s post-pandemic economic recovery has continued, the chief economic adviser argued. “Most components of economic growth are stabilising at a moderate pace and we are on track to deliver 6.8%-7% GDP growth for the current financial year,” Nageswaran said.
Manufacturing drags growth
The overall growth of Asia’s third-largest economy was also dragged down by its manufacturing sector, which contracted 4.3% on a year-on-year basis. This is in contrast to a growth of 4.6% in the April-June quarter and a rise of 5.6% during the July-September quarter in the previous financial year.
The manufacturing sector continues to be affected by an uneven recovery in demand as well as the high prices of raw materials, The Economic Times quoted CARE Ratings chief economist Rajani Sinha as saying. “This was also reflected in the decline in profit margins of corporates in the second quarter,” Sinha said.
High raw material costs have also cut corporate profits, Bloomberg quoted Sinha as saying.
Nageswaran argued that the slump in manufacturing was also a result of caution by the manufacturers ahead of India’s autumn festival season. Manufacturers did not want to add too much to the inventory ahead of the festive season as they remained cautious of weak demand. However, following a strong festive season, when manufacturers saw consumer demand rise, the sector’s performance should improve in the coming quarters, the chief economic adviser suggested.
The mining and quarrying sector also contracted 2.8% as compared to growth of 6.5% in the April-June quarter and an increase of 14.5% in the corresponding period in the previous fiscal year.
The bright spots for this quarter include agricultural output rising 4.6% and the construction sector seeing a 6.6% annual upsurge in activity. Private consumption grew 9.7% over the same period a year ago.
