• CRISIL Research First Cut
  • CPI
  • GST
  • Economy Research
  • India Research
  • Views and Commentaries
November 30, 2017

GDP re-stocked

The Central Statistical Office (CSO) on Thursday released GDP estimates for the second quarter (Q2) of this fiscal. After declining to a three-year low of 5.7% in Q1 - the fifth straight quarterly decline – GDP nosed up to 6.3% in Q2 on improvement in industrial growth.


The pick-up signals fading impact of demonetisation and destocking that preluded the implementation of the Goods and Services Tax (GST). We expect the growth to pick up to 7.6% in the second half of this fiscal, helped by low-base effect of the second half of fiscal 2017. However, GST implementation glitches, on-going changes in the GST structure, and a possible cut in capex due to rising fiscal stress may limit upside in the subsequent quarters.


Data readings


  • Gross value-added (GVA) growth, which measures the economy from the producer or supply side – and is supposed to be a better measure of economy activity – improved to 6.1% in Q2 from 5.6% in Q1, largely on account of revival in industrial activity. Industrial growth improved to 5.8% from 1.6% backed by sharp rebound in manufacturing and mining sector growth, suggesting reduction in GST-related hiccups. A broad-based improvement in the Index of Industrial Production (IIP) by 3.1% in Q2 versus 1.6% in Q1 had hinted at this trend. Services growth, however, slowed to 7.1% compared with 8.7%. Slowdown in ‘public administration, defence and other services’, or government services growth (to 6% from 9.5%) coupled with a moderation in ‘finance, insurance, real estate and professional services growth’ (to 5.7% from 6.4%) brought down the services sector growth. Agriculture growth, too, was subdued at 1.7% on account of last year’s high base and some moderation in kharif production this season.
  • On the demand side, private consumption growth moderated to 6.5% from 6.7%, suggesting the improvement in the manufacturing growth was largely the result of a re-stocking exercise. Exports growth remained flat at 1.2%. While imports growth slowed to 7.5% from 13.4%, net exports which remained negative weighed on growth.
  • Investments continue to remain subdued, declining to 28.9% of GDP compared with 29.8%. Along with low capacity utilisation and the twin balance sheet problem (high leverage of corporates and large non-performing assets in the banking system), GST-related uncertainties have deferred recovery in the investment cycle. On the other hand, the government’s Rs 2.11 lakh crore recapitalisation plan would improve banks’ ability to lend, which is an incipient positive for the investment cycle.