Official figures released on Friday say the Gross Domestic Product (GDP) grew 5.7 per cent during the first quarter of the current fiscal, up from the 4.6 per cent growth rate recorded in the preceding quarter. Growth in the manufacturing, mining and financial services sectors are the steeds the latest economic turnaround is riding.
Sentiment is the key.
With the BJP-led National Democratic Alliance government pushing hard to bolster the economy through fast clearance of growth-oriented projects and other affirmative action - in sharp contrast with the previous United Progressive Alliance government - positivity seems to have been unlocked, if not yet unleashed.
Economic growth has hit a two-and-a-half-year high during the April-June quarter, the highest in 10 consecutive quarters. "We are at the starting point of the pickup in the growth cycle in India," said Sonal Varma, an economist with Nomura.
New high
The pickup in growth was mainly on account of a rebound in the manufacturing and mining sectors.
Manufacturing, which makes up nearly 15 per cent of the economy, expanded by 3.5 per cent in the three months to end June, recovering from a 1.4 per cent annual contraction in the past quarter.
The mining sector expanded 2.1 per cent compared with a 0.4 per cent annual fall a quarter earlier. Growth of the agricultural sector, however, slowed to 3.8 per cent from 6.3 per cent in the March quarter.
The weak monsoon is also expected to impact the growth of the sector, which constitutes 14 per cent of the economy, during the next quarter.
The highest growth rate during the first quarter was recorded by the financial services sector at 10.4 per cent.
The construction sector expanded 4.8 per cent during the quarter up from 1.1 per cent growth in the year-ago period.
CRISIL chief economist D.K. Joshi told Mail Today that the GDP growth figure for the first quarter is on expected lines.
"Manufacturing would continue to grow during the current fiscal. Mining could see a slowdown, but it would depend on policy initiatives from the government," he observed.
"Agriculture growth would show a negative trend in the second quarter due to the weak monsoon. However, we expect consumer goods, auto, textile and pharma sector to do well," Joshi added.
According to the National Council of Applied Economic Research (NCAER), the business confidence index continued to show an upward trend for the quarter ended June 2014.
Policies
There is a dark lining, however.
The fiscal deficit is galloping away - it is already at over three-fifths of the 2013-14 budgeted expenditure-and economists say achieving that goal would be tough.
It is also worth noting that year-on-year growth was also helped by a favourable statistical base because of weak economic activity last year.
And it is early days yet.
In the first three months of his term, Modi has focused on incremental measures like faster regulatory clearances to make it easier to do business.
But he has yet to hit his stride in tackling structural reforms, such as a proposed general sales tax that would unify the market, needed to revive investment and deliver sustainable growth.
Despite claiming the strongest election mandate in 30 years, Modi lacks a majority in the Rajya Sabha to get the approval for key bills.
That has already delayed the proposed legislation to increase foreign direct investment limits in the insurance and pension sector.
Meanwhile, India Inc. cheered the rebound in the economy on Friday saying it expects the GDP to pick up further on the back of conducive investment policies and reforms.
"The GDP will only pick up further and the Indian economy is well poised to reach six per cent or may even cross the six per cent mark for the full financial year 2014-15," Assocham president Rana Kapoor said.
CII director general Chandrajit Banerjee said going forward, the industry body expects that quick and pro-active government policies would act as a "growth propeller", and further strengthen business confidence and provide stimulus to growth.
Written by PRAMOD
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