By Ruma Dubey

The second quarter ended 30th Sept 2015 GDP came in at 7.4%, which was very much in line with what most analysts had estimated. What this shows is that this has been a very gradual pick-up and there are two things dragging down growth – firstly, the bad monsoon and secondly, worsening external, global circumstances. Given these facts, then it is pretty credible that we have been able to grow over 7% at all!

Having said this, it is also imperative to say that this GDP data is very volatile, especially in the new series as we have seen previously. We really have no reason to go over the moon, celebrating this GDP. We have to realise that this is an economy undergoing a cyclical change amidst excruciating external factors. And under these circumstances, it becomes all the need important to have a robust manufacturing sector to give a cushion from falling agriculture growth.

Manufacturing growth is high at over 9% and we cannot help but wonder where it has come from given the fact that there is really no new investment in the sector. Maybe it is debottlenecking which is showing some effect but it is too early to bring in the victory trumpets.  

Do not jump to any conclusion about capacity utlisation based on one quarter of over 9% manufacturing growth. The fact still remains that output is around 4-4.5%. So this should instead be read as there is so much more capacity catching-up that needs to happen.

Agriculture growth continues to lag. According to the information furnished by the Department of Agriculture and Cooperation (DAC), which has been used in compiling the estimate of GVA from agriculture in Q2FY16, the production of cereals, oilseeds and pulses registered growth rates of (-)1.8%, 8.5% and (-)1.1% respectively during the Kharif season of agriculture this year. Around 51% of GVA of this sector is based on the livestock products, forestry and fisheries, which registered a combined growth of above 6% in Q2FY16.

In manufacturing, private corporate sector growth (which has a share of around 65% in the manufacturing sector) as estimated from available data of listed companies with BSE and NSE is 8.1% during current Q2 and thus growth of this sector at constant price is 9.3%. The quasi corporate and unorganized segment (which include individual proprietorship and partnerships and khadi & village industries has a share of around 2.6% in the manufacturing sector) has been estimated using IIP of manufacturing. IIP manufacturing registered growth rates of 4.6% during current Q2 v/s 0.4% in previous Q2.

In terms of private and public consumption and expenditure, Private Final Consumption Expenditure (PFCE) at current prices is estimated at Rs.19.60 lakh crore in current Q2 v/s Rs.18.09 lakh crore (YoY). Government Final Consumption Expenditure (GFCE) at current prices is estimated at Rs.4.52 lakh crore in current Q2 v/s Rs.4.23 lakh crore (YoY).

The market is completely unmindful of all these facts as it is now focused on two dates – tomorrow, when RBI Governor will take a call on interest rates and then 17th Dec when the US Fed meets. It is almost a foregone conclusion that tomorrow will be a non-event with no change in the rates. But 17th Dec will be crucial for all to know when and how US plans to turn around the interest rate cycle.

But every time, we harp on and on about rate cuts but is that alone going to help bring down rates. And also as rightly said by the RBI Governor, it is better banking practices which can bring down rates. He said that fixing legal loopholes in the financial system that helps unscrupulous promoters game the system, will do a lot more to bring down borrowing costs than monetary policy actions.

Right now, we are not looking at Rajan for mood improvement. He simply cannot provide that. We do not need any mood improvement now – we have more than enough of that. What we really need to see now is all the talk getting transformed into action. Reforms need to take off and not get stalled in the Parliament. More than RBI, unless Govt spurs public investment in infrastructure, we could continue to juggle growth numbers by merely changing methods, far from the actual reality. And remember mere rate cuts are not enough - unless people start buying, these cuts remain meaningless. Sentiments are tepid now and the Govt needs to ensure this does not turn negative....