GDP up 5.7% to 10-quarter high

Beating expectations, India’s Gross Domestic Product (GDP) grew at 5.7 per cent during April-June, the highest in 10 quarters. Though it came on a low statistical base of 4.7 per cent during April-June 2013, the pick-up signals that the economy is recovering, spurred by a revival in the investment cycle and an upturn in the factory sector.

Whether a full-blown recovery will ensue will depend on the monsoon — as the agriculture sector output impacts farm incomes and therefore consumption spending in the economy — and the steps taken to attract investments and expedite stuck projects.

“The GDP data is encouraging for it shows that India’s manufacturing sector is not stuck at the zero per cent growth it was at for some time. Provided the government takes the right steps, the manufacturing sector can revive,” former Chief Economic Adviser Arvind Virmani told The Hindu. “The capital formation data, too, is encouraging for it shows India is no longer stuck in a stagnant investment cycle.”

Factory output grew 3.5% in April-June

Factory output grew 3.5 per cent during April-June. It had shrunk by minus 1.2 per cent during the same period in 2013, according to official data released on Friday. The recovery of the factory sector augurs well for the economy’s revival due to its potential for creating jobs.

Gross fixed capital formation, an indicator for investments, grew 7 per cent.

Turnaround in mining

Besides the rebound in the manufacturing sector, the growth was led by a turnaround in mining which grew 2.1 per cent against minus 3.9 per cent. The fastest growing sector was electricity, gas and water supplies, which grew 10.2 per cent against 3.8 per cent during April-June 2013.

The Reserve Bank of India has projected 5.5 per cent growth for the current financial year. Growth in the last two financial years had remained sub-5 per cent.

Expected: FinMin

In a statement, the Finance Ministry underplayed the data saying it was “broadly on expected lines” but added that the economy could improve further during the year as the important sectors of exports and manufacturing had seen improvement. With the U.S. economy picking up, the Indian export sector can be expected to do well.

Further, data for July indicates that the recovery could have continued, with demand for power rising 11 per cent over the same month previous year. Demand for four-wheelers increased 6.5 per cent and diesel consumption grew 6.3 per cent.

In 2013-14, demand for power rose only 0.7 per cent, four-wheelers declined by minus 7 per cent and diesel consumption fell minus 1.1 per cent.