Q2 GDP - IN LINE WITH EXPECTATION By Ruma Dubey

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Q2 GDP - IN LINE WITH EXPECTATION

By Ruma Dubey Q2 Q1 YoY GDP 6.9% 7.7% 8.4% MANUFACTURING 2.7% 7.2% 7.8% FARM 3.2% 3.9% 5.4% MINING -2.9% 1.8% 8% CONSTRUCTION 4.3% 1.2% 6.7% TRADE, TRANSPORT 9.9% 12.8% 10.2% FINANCIAL SERVICES 10.5% 9.1% 10% ELECTRICITY, GAS 9.8% 7.9% 2.8% The Q2 GDP numbers did not disappoint. They were as expected. Not spectacular but at least it means that we are not exactly falling off the cliff. The markets were not too perturbed and it bounced back, going back to business as usual once the numbers confirmed with its expectations. Investment deceleration is worrying. It is down sharper than what was anticipated.  The gross fixed capital formation came in at Rs.4.02 trillion compared to Rs.4.05 trillion on YoY and Rs.4.10 trillion on QoQ. So clearly there is a gradual falling trend emerging. Private sector consumption has come down 5.6% and so have the private sector expenses and this is extremely worrying. We do know that no new major investments are really happening and thus this comes as no real surprise.   The ‘star’ was exports. For the quarter, it rose from Rs.2.6 trillion to Rs.3.3 trillion, over 30% rise in exports on a QoQ. And this is what helped shore up the GDP figures.  What also helped was the services sector at 9.3% which is good if not exactly robust. But the performance of the other sector is not as good and this to a large extent, negated the performance of exports and services. Nothing seems to be happening in terms of policy reforms or even on the global horizon and thus we now need to think about FY13, which could also continue to see more pain, especially in Q1.  We are now seeing the effect of the monetary tightening and it will continue to keep a firm lid on growth for some time now. For now expectations are demoralizing. Lower growth, higher fiscal deficit at around 4.6%, slipping tax revenue, weaker rupee and global scenario. There does not seem to be much to be optimistic about expect maybe a bumper crop coming in post the good monsoon. The govt needs to introspect, read these figures carefully and give thought – it needs to get into action or else, the Indian economy could fall into the abyss. The Govt needs to take steps to stimulate growth and if the Govt continues to announce only pro-poor policies to catch the vote bank, it might miss out on the bigger picture. Incidentally, the pro-poor policies are not too working too well, infact the gap between the haves and the have not’s has only widened. Govt needs to focus on supply side issues. For so long, the growth was hit by interest rate hikes and inflation but now the focus has shifted to policy inaction. And unless the Govt works, we are in for a long season of no cheer. GDP for FY12 is expected to be at the most at 7.1%. Inflation might come down to 6-7% by March and these numbers, if nothing else, indicates that RBI might take that much needed pause. Rate cuts? That might not happen till end of Q1FY13 or early Q2FY13.