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'Manufacturing GVA growth in Q2 surprising'
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SME Times News Bureau | 28 Nov, 2020
The manufacturing sector played a major role in narrowing down the
India's GDP contraction in Q2 of FY21. An SBI Ecowrap report, however,
dubbed the growth in manufacturing GVA as "astonishing" as the IIP
manufacturing for the same period declined by 6.7 per cent.
India's GDP in the July-September period contracted 7.5 per cent, compared with 23.9 per cent in the preceding quarter.
The
GVA in Q2 2020-21 from the manufacturing sector grew 0.6 per cent, as
compared with a degrowth of 0.6 per cent in the corresponding quarter of
the previous fiscal.
The report by Soumya Kanti Ghosh, Group
Chief Economic Adviser, State Bank of India, said: "Though the whole
press release is full of surprising numbers, the most astonishing number
is the positive growth in manufacturing in Q2."
He noted that
despite being the worst affected sector in Q1 (due to lockdown), it is
quite puzzling how manufacturing turned itself around.
The IIP
manufacturing and manufacturing GVA growth are highly correlated (almost
more than 0.90) and this correlation collapsed in Q2 when IIP
manufacturing declined by 6.7 per cent (average of
July/August/September) while manufacturing GVA grew by 0.6 per cent.
He said that one possible reason for this could be stellar corporate GVA numbers in Q2 on the back of massive purge in costs.
Further,
he said that small companies, with turnover of up to Rs 500 crore, are
more aggressive in cutting cost, displaying reduction in employee cost
by 10-12 per cent.
"This could turn a potential headwind in
future in terms of a drag on consumption. Additionally, there is
evidence of inventory build-up that could act as a drag on future
manufacturing growth," said the report.
"Interestingly,
government consumption expenditure has also nosedived in Q2, that is
difficult to explain, as such expenditures are typically pro cyclical."
During
the July-September period, agriculture sector continued to perform well
with its growth pegged at 3.4 per cent. Services remained in the
negative territory, although the decline was contained as trade, hotels,
transport, communication and services related to broadcasting showed
recovery.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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84.65 |
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75.65 |
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56.85 |
As on 13 Aug, 2022 |
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