Economy grows 5.5% in Q1 on farm, construction push

K.R. Srivats New Delhi | Updated on March 12, 2018


This better-than-anticipated GDP growth for the June quarter may prompt the Reserve Bank of India to stand still at its upcoming monetary policy review meet.

Yet, dims hopes of policy rate cuts by RBI

Aided by better farm sector performance and a one-off pick-up in construction activity, the economy grew 5.5 per cent in the first quarter of this fiscal.

The performance is marginally better than the January-March quarter growth of 5.3 per cent, which was the lowest quarterly growth in nine years.

It is, however, much lower than the 8 per cent GDP growth recorded in the April-June quarter last fiscal.

Reacting to the first quarter GDP growth numbers, Finance Minister P. Chidambaram said the decline in growth of fixed investment (0.7 per cent against 14.7 per cent in Q1 last year) was a source of concern to the Government.

It emphasises once again the need to take quick decisions to accelerate investments, especially removing all bottlenecks to investments in the manufacturing sector, Chidambaram said in a statement here.

Positive on second half

Top policymakers like PMEAC Chairman C. Rangarajan contend that the economy may have turned the corner in Q1 this fiscal.

The overall economic performance is expected to be a shade better than last year, given the first quarter growth number, according to Rangarajan. He sees a further pick-up in GDP growth in the second half of the current fiscal.

The pick-up in the construction sector (10.9 per cent growth as against 3.5 per cent in Q1 last year) is corroborated by a 11 per cent increase in cement production and an 8.8 per cent increase in finished steel consumption during the quarter under review.

But economists and capital market pundits think otherwise. They see nothing in the latest GDP performance to show that the economy had bottomed out and the worst was over.

The better-than-anticipated agriculture growth of 2.9 per cent for the April-June quarter was seen as a mild aberration.

The construction sector pick-up is seen as a one-off occurrence, supported by the relatively dry period in June and July, they said.

Improved monsoon in the second quarter may alter the picture, they said. The marginally better GDP growth number would render the RBI’s September 17 monetary policy review meet meaningless.

One would do well to rule out expectations of any policy rate cut on that date, say economy watchers.

The news was also not encouraging on the services front, especially in trade, hotels, transport and communication, which saw a 4 per cent growth as against 13.8 per cent in same quarter last year.

The benchmark Sensex closed at a fresh four-week low on Friday as the better-than-anticipated GDP growth of 5.5 per cent dashed hopes of a policy rate cut by the RBI, said capital market observers.


Published on August 31, 2012

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