The economy expanded 8.4 per cent in the second quarter of the last financial year. The GDP numbers for the second quarter of the current financial year are scheduled to be released on Wednesday.

Most economists pegged the GDP growth rate at 6.5 per cent. The Reserve Bank of India’s monetary policy committee (MPC) has projected it to be 6.3 per cent.

D K Joshi, chief economist at CRISIL, said the drop in growth is largely base-effect driven. “Revival of contact intensive services, consumption demand and public investment supported growth in Q2. The high base effect will weigh on growth in the second half as well,” he said.

Aditi Nayar, chief economist at Icra Ltd, said economic activity in the second quarter of this financial year benefitted from robust demand for contact-intensive services, government capital spending and pre-festive season stocking of goods.

“The downsides emanated from the mixed crop output trends revealed by the advance estimates of kharif production, adverse input cost movements for certain sectors with a higher fuel intensity, as well as the impact of flagging external demand on non-oil merchandise exports,” she said.

Jahnavi Prabhakar, economist at Bank of Baroda, said even as the global economy slows down and there is aggressive monetary tightening by global central banks, India’s economy is growing at a steady pace on the back of strong fundamentals.

She attributed the reason for slower economic growth in the second quarter to base effect. Prabhakar said the services sector will be the key for economic revival. The Indian economy is poised to grow by 6.8 per cent in FY23 compared with a growth of 8.7 per cent in FY22, she said.

India Ratings chief economist Devendra Pant, who predicted the highest growth of 7.2 per cent for the second quarter of this fiscal year, said the base effect is slowly going away.

“Higher inflation is having its impact on consumption demand. While government capex is strong, the private capex is likely to remain weak. Higher commodity prices and weak currency will also have an impact on pulling down GDP growth,” he said.

QuantEco Research economist Yuvika Singhal, who projected the economy to grow by close to 6.3 per cent during the second quarter, said the growth was led by recovery in the services sector amidst a complete opening up of the economy, especially contact intensive sectors.

“Manufacturing in comparison is likely to see a lower growth momentum with IIP (the index of industrial production) for both consumer durables and non-durables contracting in the quarter. This underscores some possible downside in consumption, amid elevated inflation, lagged advancement of rainfall and sowing in Q2 FY23,” she said.

Improvement in capacity utilisation is likely to have sustained into Q2, supporting investment demand as reinforced by stronger performance of capital goods production and imports both, she said, adding that higher government spending, led by capex, is also likely to have offered support.

She further said that growth in capex spending at 49.5 per cent in the first half of the current financial year on an annualized basis is the highest run rate seen over the last decade or so.

Looking ahead, for Q3 of FY23, while festive/pent-up demand and some moderation in inflation/input prices is likely to pan out, headwinds from lingering geopolitical tensions, tightening global financial conditions and downside to global growth could more materially weigh on growth prospects, she said.

The October-22 sequential downside in exports to the tune of 16 per cent can be seen a prelude to the impending slowdown, she said adding, “For the full year, we continue to hold on to our GDP growth estimate of 6.8 per cent.”

Ranen Banerjee, who works with PwC and pegged the growth at the lowest range of 6-6.2 per cent, said the upside will be from the pick-up in contract services and travel with further removal of restrictions and fading fear of Covid.

The festival sales in September for the impending festivities in October would also provide the upside, he said.

“The headwinds would of course be from the higher trade deficit that would pull it down towards the lower end of the range. The late monsoons disrupting business activities would also depress the numbers,” he said.

The economy grew 20.1 per cent in the first quarter of the Covid second wave-hit 2021-22 and 8.4 per cent in the second quarter. This may prompt many to say that the base was smaller in the second quarter of 2021-22 and hence the growth should be higher in the second quarter of the current financial year than 13.8 per cent witnessed in the first quarter. However, the growth of 20.1 per cent in Q1 2021-22 came on the base of a massive 23.8 per cent contraction, while the growth of 8.4 per cent in the second quarter of the year came on the contraction of 6.6 per cent. That is why the GDP growth in the second quarter this year would have seen the base normalisation.