Manufacturing shrinks, slowing Q2 GDP Growth to 6.3%

According to the latest figures, manufacturing activity has contracted in the second quarter of this year and GDP growth has slowed to 6.3%.

In the July-September quarter, manufacturing and mining output contracted compared to last year’s numbers, slowing Gross Value Added growth down even lower than expected to only 5.6%. In addition, high inflation rates and weak exports combined with this slow GDP growth rate caused overall Gross Domestic Product growth to fall significantly behind expectations pace-wise, capping out at a mere 6.3%.

India’s GDP in the first half of 2022-23 was 5.7% higher than before the pandemic, amounting to a little over ₹75 lakh crore. The country experienced economic growth of 13.5% in April to June quarter this year, with GVA expansion reaching 12.7%.

In the second quarter, GVA growth in agriculture quickened to 4.6%, up from 4.5% in the preceding three months; however, manufacturing and mining GVA contracted by 4.3% and 2.8%, respectively, during this same period compared with a year earlier.

9.7% growth in GDP and 9% rise in GVA during the first half of 2022-23 marks a slower economy when compared to last year’s statistics of 13.7% growth in GDP and 12.8% surge in GVA respectively, for the same period.

V Anantha Nageswaran, the Chief Economic Advisor said that data affirms the economy’s road to recovery from the pandemic is continuing as planned and they expect to clock in between 6.8% to 7% real GDP growth by the end of this year.

The contact-intensive trade, hotels, transport, communication, and services related to the broadcasting segment had the sharpest growth in Q2 compared to other GVA components, expanding by 14.7%. Financial, real estate, and professional services grew by 7.2% while construction saw an expansion of 6.6%.

Bank of Baroda chief economist Madan Sabnavis stated that the negative growth in the manufacturing sector is upsetting, and it’s due to both low profits for enterprises as well as a drop in productivity from small to medium businesses.

D.S. Srivastava, the chief policy advisor for EY India, showed that while the contact-intensive services segment is only 2.1% higher than levels before COVID, manufacturing output has increased more than 6.3%. He also stated-

“Therefore, the growth of 14.7% in trade, hotels, et. al. in 2QFY23 may not be considered unduly positive and a contraction in the manufacturing sector in this quarter may not be viewed as unduly subdued.”

The CEA (Chief Economic Advisor) noted that India’s growth rates are well above the average for other countries, even with global financial conditions tighten and commodity prices high since Russia invaded Ukraine. He added that growth rates will moderate due to base effects.

Mr. Nageswaran stated that, except for consumer durables, production levels for most sectors have surpassed pre-pandemic numbers, while in services, all but domestic air passenger traffic has returned to 2019-20 norms.

In a note, CARE Ratings stated that “a sharp weakening of net exports in Q2 compared with a year ago level has also weighed on overall GDP growth.”

It further suggested the economy going forward will depend heavily on ‘a pick-up in domestic demand and added-

“With fears of a global growth slowdown and weaker currency, the decline in net exports will remain a cause of concern.”

Despite the slowdown in GDP growth and manufacturing output, India is still on a path of recovery from the pandemic.

The central government has implemented several measures to ensure long-term stability for the economy, including improved access to credit, regulatory changes for MSMEs and small businesses, special incentives and relief packages, foreign investment reforms, and more.

It is expected that these will help drive the economy forward and bring back normalcy. As India works towards a full economic recovery, it can take comfort in knowing that its growth rates remain above average despite global financial conditions. With concerted efforts, India could soon be on its way to achieving sustainable development goals in 2022-23.

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