Better-than-expected Q2 growth eases pressure off RBI to cut rates

On a day when stock markets continued their surge with the Sensex scaling a new peak of 28,693 and the Nifty shooting up to 8,588, growth in gross domestic product (GDP) turned out to be a better-than-expected at 5.3 per cent for the July-September quarter, data provided by Central Statistics Office showed on Friday.

Given the drop in growth rate, low oil prices and declining inflation, Union Finance Minister Arun Jaitley is expected to reiterate his request that Reserve Bank of India governor Raghuram Rajan cut interest rates when the bank holds it policy review on December 2, senior officials said.

"If it was a very, very low number, there would have been pressure on the (RBI) governor to act immediately. The better-than-expected overall GDP growth gives him that cushion to wait," said Upasna Bhardwaj, economist with ING Vysya Bank.

"Looking ahead, in order to steer economy, there is need for continuing with proactive policies which would help revive investment and address the bottlenecks plaguing the agriculture and industrial sectors," the Confederation of Indian Industry said.

Growth in services and stronger-than-expected agriculture after a poor monsoon helped stem the slide in the manufacturing sector, which registered a negligible growth at 0.1 per cent during the second quarter down from 1.3 per cent a year ago. The slump in manufacturing dragged down the growth rate from the 30-month high of 5.7 per cent in the previous quarter. The farm sector managed to grow at 3.2 per cent.

The runaway fiscal deficit has raised cause for alarm as well. Data released by Controller General of Accounts on Friday showed that seven months into the financial year, fiscal deficit has already touched 89.6 per cent of its full-year target as tax income fell short. Jaitley may choose spending cuts to meet his deficit goal at the cost of further pressure on demand. During the same period of FY14, the deficit was at 84.4 per cent of the Budget Estimates (BE).

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GROSS NPAs OF PSU BANKS 5.33%

>> NPAs of public sector banks rose sharply to 5.33% of total advances in September mainly due to sluggishness in the economy and other factors, including delay in environmental clearances

>> Gross NPAs of state-run lenders stood at 4.72% of total advances at the end of March 2014

>> External factors like ban in mining projects and aggressive lending by banks in the past contributed as well

>> Net NPAs of PSBs at September-end rose to 3.14% from 2.74% in March 2014