Did Higher Commodity Prices Push Up GDP Growth?
The Indian economy grew at 7 percent in the third quarter of the current financial year despite pressure on economic activity due to a shortage of currency. The government's decision to withdraw old Rs 500 and Rs 1,000 notes was widely expected to impact activity across sector that depend on cash. While some of this was visible across sectors like real estate, headline growth was higher than expected.
One factor that helped was the strong rebound in commodity prices which pushed up mining output. Growth in the mining segment surged to 7.5 percent compared to -1.3 percent in the previous quarter. This reflects the steady uptick in commodity prices, said Saugata Bhattacharya, chief economist at Axis Bank in an interview with BloombergQuint on Tuesday. During the October-December quarter, the CRB Commodities Index rose by over 5 percent. These price increases would have reflected on the mining index because of the way it is computed, said Bhattacharya.
The personal consumption growth has been a surprise. Other data points have suggested that consumption dropped after demonetisation and then partially recovered. It is worth asking whether consumption in October (around Diwali) and early November was better this time? This could have come from either the 7th Pay Commission awards or the better earnings in the agriculture sector due to the strong rains. Some part of the consumption growth may be linked to that.Saugata Bhattacharya, Chief Economist, Axis Bank
“The sharp turnaround in mining and quarrying is not unexpected given the recent uptick in commodity prices and the earnings of various corporates in the mining and commodity-intensive sectors,” added Aditi Nayar of ICRA in a research report released on Wednesday.
Commodity prices may have also had some impact on the strength in manufacturing output since the increase in oil prices pushed by gross refining margins (GRMs) of energy companies, added Bhattacharya.
Also Read: As GDP Growth Outstrips Forecasts, Economists Scramble To Explain
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