Q2FY10 GDP surpasses expectations by leaps and bounds
India’s real GDP during Q2FY10 recorded 7.9% Y-o-Y growth rate, leaving India Inc. gaping and pointing at Y-o-Y H1FY10 growth of 7% (comparable with 7.8% Y-o-Y in H1FY09).
Agriculture escapes fall; manufacturing, trading lead recovery
The strong growth is on the back of a sharp rebound in industrial activity and sustained momentum in service sector growth. Nevertheless, it was the agriculture sector that surprised market estimates by growing ~1% Y-o-Y vis-à-vis estimated decline. Historical trends, however, suggest that the severe rainfall deficiency (deficit of ~23%) during the monsoon season of FY10 is bound to have a sharp adverse impact on the growth of agriculture GDP in either Q2 or Q3FY10. On the other hand, manufacturing sector clearly stood out as the growth propeller, owing to improved performance of domestic-focused sectors, possible reflection of a lagged impact of stimulus measures, significant inventory re-stocking, better availability of funds, and improved consumer and business confidence. Services sector growth was led by ‘trade, hotels, transport and communication’ and government’s social spending captured under ‘community, social and personal services’ – a large part of the latter being driven by the disbursal of Pay Commission related arrears.
Stimulus roll-back, monetary tightening to be gradual
Government stimulus measures and an overtly accommodative monetary policy offered significant support for recovery in GDP growth over the last one year. RBI, in its last monetary policy review in October 2009, stepped up on the road to a ‘calibrated exit’ – starting with unwinding of the unconventional policy measures adopted during H2FY09. With the domestic-focused sectors now on a firm-footing and continued pressure on the fisc, we believe, a gradual unwinding of some of the stimulus measures will be also on the government’s agenda Q4FY10 onwards.
India’s real GDP during Q2FY10 recorded 7.9% Y-o-Y growth rate, leaving India Inc. gaping and pointing at Y-o-Y H1FY10 growth of 7% (comparable with 7.8% Y-o-Y in H1FY09).
Agriculture escapes fall; manufacturing, trading lead recovery
The strong growth is on the back of a sharp rebound in industrial activity and sustained momentum in service sector growth. Nevertheless, it was the agriculture sector that surprised market estimates by growing ~1% Y-o-Y vis-à-vis estimated decline. Historical trends, however, suggest that the severe rainfall deficiency (deficit of ~23%) during the monsoon season of FY10 is bound to have a sharp adverse impact on the growth of agriculture GDP in either Q2 or Q3FY10. On the other hand, manufacturing sector clearly stood out as the growth propeller, owing to improved performance of domestic-focused sectors, possible reflection of a lagged impact of stimulus measures, significant inventory re-stocking, better availability of funds, and improved consumer and business confidence. Services sector growth was led by ‘trade, hotels, transport and communication’ and government’s social spending captured under ‘community, social and personal services’ – a large part of the latter being driven by the disbursal of Pay Commission related arrears.
Stimulus roll-back, monetary tightening to be gradual
Government stimulus measures and an overtly accommodative monetary policy offered significant support for recovery in GDP growth over the last one year. RBI, in its last monetary policy review in October 2009, stepped up on the road to a ‘calibrated exit’ – starting with unwinding of the unconventional policy measures adopted during H2FY09. With the domestic-focused sectors now on a firm-footing and continued pressure on the fisc, we believe, a gradual unwinding of some of the stimulus measures will be also on the government’s agenda Q4FY10 onwards.
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