New Delhi: India’s GDP growth plunged to its lowest level in nearly two years due to a slump in the Manufacturing sector which is crucial for employment creation. It is not just manufacturing that pulled down the GDP growth to a seven-quarter low but other domestic factors such as mining and quarrying and external factors such as declining exports seemed to have derailed the growth trajectory.
Though experts have predicted a slowdown in the GDP in the second quarter of this financial year (July-September 2024) period but the steep decline has surprised many pundits as they projected GDP growth in the second quarter to be in the range of 6.5 per cent whereas in the Reserve Bank’s monetary policy committee meeting held in October this year had forecast second-quarter GDP growth to be at 7 per cent.
India’s GDP growth was measured at 8.1 per cent during the same period last year on a year-on-year basis and a sequential basis, in the first quarter of this financial year, the GDP growth was measured at 6.7 per cent.
A sharp decline in GDP in the last quarter is more concerning as it covers the period of India’s biggest festive season which includes festivals such as Deepawali, Dhanteras and another auspicious occasions when a large number of Indians make their purchases such as housing, automobiles, jewellery and ornaments and host of other manufactured goods.
India's GDP growth rate has never been below six per cent during the last seven quarters after the third quarter of FY 2022-23 (October-December 2022) when it plunged 4.3 per cent.
Thereafter it picked up the pace and registered a growth of 6.2 per cent in the fourth quarter of FY 2022-23 and jumped to over 8 per cent (8.2 per cent) in the first quarter of the last financial year.
Since then it maintained momentum for the next two quarters of the last financial year, clocking a growth rate of 8.1 per cent and 8.6 per cent in the second and third quarters of the last financial year, respectively. The first sign of moderation in economic activity was detected in the last quarter of the financial year (January-March 2024 period) when the economic growth decelerated to below 8 per cent when it was estimated to have grown at 7.8 per cent in the first quarter of the last financial year.
Since then GDP growth has registered a steep decline of over one per cent in each of the last two quarters, it declined from 7.8 per cent in January-March this year to 6.7 per cent in April-June and then it slumped to 5.4 per cent in the July-September period this year.
So what went wrong?
In September this year, the country celebrated 10 years of the launch of the government’s flagship scheme Make in India which was devised to improve the share of the manufacturing sector in the country’s GDP which is largely driven by services. However, the share of manufacturing remained at almost the same level as it was ten years ago.
In other words, the manufacturing sector, which is crucial for employment creation as it is labour-intensive, remains an Achilles’ heel for the policymakers.
A breakdown of the latest official data released by the National Statistical Office (NSO) on Friday shows that Financial Real Estate and Professional Services accounted for 26 percent of the country's GDP in the last quarter of this fiscal, while Trade, Hotels, Transport, Communicant and Broadcasting related services accounted for 18 percent followed by Public Administration and Defence and Other services at 16 per cent. This means that these three services sectors alone accounted for 60 percent of India's GDP in the second quarter.
These services are followed by the Farm sector which includes Agriculture, Livestock, Forestry and Fishing with 14 per cent share and manufacturing which also accounted for 8 percent in the country's GDP in the July-September period this year. These are followed by Construction at 8 per cent, Mining and Quarrying at 2 percent and Electric, Gas, Water and other Utility Services at 2 per cent.
Manufacturing Woes
As per the Quarterly Estimate of GVA at Basic Prices for the last quarter, the growth rate in Manufacturing GVA declined from a high of 14.2 percent of the same period last year to just 2.2 per cent in the same period this year. On a sequential basis also, the Manufacturing GVA declined from 7 per cent in the first quarter (April-June 2024) to 2.2 per cent in July-September this year.
Moreover, the Mining and Quarrying sector GVA declined from 11.1 per cent during the same period last year to -0.1 per cent in July-September this year. On a sequential basis, it declined from 7.2 per cent in April-June this year to negative growth in July-September.
More importantly, it happened ahead of India's festive season which begins in October and goes to February-March next year when most of the festive purchases and wedding-related purchases occur.
Global Factors
In addition to domestic woes, India's exports growth also suffered a steep decline during this period. For example, every year, exports growth declined from 5 percent during the same period last year to just 2.8 percent in July-September this year. Moreover, the decline in export growth is even sharper in sequential terms i.e. export growth declined from a high of 8.7 percent in April-June this year to just 2.8 per cent in July-September.
