India fiscal Q2 GDP growth slows to 8.4%; eyes huge fertilizer subsidy

MUMBAI (ICIS)–India’s economic growth in the fiscal second quarter ending September 2021 decelerated to an annualized rate of 8.4% from the previous three months, but represented a strong recovery from the steep contraction in the same period last year amid a pandemic-induced nationwide lockdown.

The current GDP growth marks the fourth consecutive quarter of expansion after shrinking for two quarters in the fiscal year 2020-21. India’s fiscal year ends March.

In the first quarter of the current fiscal year 2021-22, the economy posted a strong 20.1% annualized growth, aided by a very low year-on-year base and a strong rebound in manufacturing and construction sectors.

In the September quarter of 2020, the giant emerging economy shrank 7.4% year on year.

India’s central bank, the Reserve Bank of India (RBI) has forecast an annual growth of 9.5% in the current fiscal year.

The second-quarter 2021 growth reflects a recovery in manufacturing and consumption as shown by core sector output data.

In October, the combined index of India’s eight core industries grew 7.5% year on year, higher than the 4.5% growth posted in September, according to the Ministry of Commerce on 30 November.

In the same period in 2020, production at these sectors had contracted by 0.5%.

The index measures the output of eight infrastructure sectors: coal, steel, cement, fertiliser, electricity, natural gas, refinery products and crude oil – which has a 40.3% share of the country’s overall industrial production.

Production of coal, natural gas and refinery products increased 14.6%, 25.8% and 14.4% respectively while production of crude oil declined 2.2% year on year in October.

Natural gas and refinery products posted a recorded year-on-year growths of 25.8% and 14.4%, respectively, due to a low-base effect.

Fertilizer output posted a minimal growth of 0.04% year on year for October.

Low domestic production combined with shipping bottlenecks and a sharp increase in international prices may now force the government to increase its fertilizer subsidy for 2021-22 to more than $20.6bn to avoid shortages, according to newswire agency Reuters.

The government is expected to seek parliamentary approval in the current session for extra spending on subsidy during the ongoing winter session of the Parliament, which runs from 29 November to 23 December.

The figure is almost double the amount budgeted for fertiliser subsidies for the current fiscal year.

Global fertiliser prices have nearly tripled over the past year on feedstock shortage and export restrictions in China, which is a key supplier of fertilizer to India.

Chemicals & Fertilizers minister Mansukh Mandaviya had said that the government had made arrangements for the supply of 1.8m tonnes of diammonium phosphate (DAP) against a total demand 1.7m tonne for November, dispelling rumours of reduced availability of supply.

Urea availability was pegged at 7.6m tonnes against a demand of 4.1m tonnes in November, he added.

Demand for fertilisers usually rises during the months of October and November, which is the season for sowing winter crops like wheat.

Focus article by Priya Jestin