The GDP growth for the June quarter was announced on August 31st. At a rate of 8.2%, the GDP growth is much higher than the market consensus estimates of around 7.5%. But is it something to really cheer about? Let us look at the good news first.
Of course, there is good news
Without a doubt there is good news on the economy front. The growth of 8.2% is one of the highest quarterly growths that the economy has witnessed in the last few years. What is encouraging is that there has been all round growth across most sectors. For example, the growth in agriculture is really significant. From a low of 3% growth in agriculture in the June 2017 quarter, the growth has bounced back to 5.3% in the June 2018 quarter. This rate could only get better as the impact of the higher MSP and the strong Kharif output gets factored in the second and third quarters. Manufacturing growth at 13.5% has been the truly impressive number. Manufacturing has been robust across capital goods and consumer goods. The only segment that did not show positive vibes was the construction space but that is largely understandable. On the services side, the shift is a lot more palpable, especially considering that services account for 60% of the GDP of the economy. The growth has finally gone beyond the administered and utility services and there has been a pickup in services across the board.
What about base effect?
A large part of the 8.2% growth in GDP can be actually explained by the base effect. Take the case of GDP overall. The GDP growth in the current quarter at 8.2% is largely inflated because the GDP growth in the Jun-17 quarter was just about 5.6%. In other words, if the growth in Jun-17 quarter had been 6.8% then the GDP growth in Jun-18 too would have been only 6.8%. The GDP numbers are inordinately inflated in this quarter because of the base effect. Last year, it was the Jun-17 quarter which bore the brunt of demonetization aftermath as well as a slowdown in business ahead of the proposed GST launch. Relatively, the GDP growth in 2018 is bound to look flattering.
But, there is room to celebrate…
While the base effect has played a major role, it is not just about that. There are three key takeaways from the GDP data announcement. Firstly, the economy may have finally put the impact of note ban behind. Secondly, GST has been actually positive for output and that may be the good news. Lastly, the current quarter should be seen more as the green-shoots of a full-fledged recovery than anything else. From that perspective, the latest GDP numbers are definitely significant. What will really count is how this GDP growth is sustained in the next 3 quarters and for the full year 2018-19. ©