The economy grew an impressive 7.9% in the March quarter, driving up the annual expansion in 2015-16 to 7.6%, official data released on Tuesday showed. India remained the fastest growing major economy, maintaining it lead over China, which grew just 6.7% during the March quarter, the slowest in seven years.
India’s impressive growth in the March quarter mirrored good corporate sector results and was aided by a recovery in agriculture growth — thanks to a 5% rise for non-crop sector in 2015-16 and a favourable base. Private final consumption expenditure (PFCE) witnessed a second straight quarter of expansion at 8.3%, compared with 8.2% in the December quarter, despite rural distress. For the full year, the growth was mostly driven by consumption, with PFCE witnessing 7.4% expansion, compared with 6.2% in 2014-15.
While plentiful monsoon rains after two years will help revive farm sector growth and boost consumption expenditure, analysts feel a pick-up in investments will be key to sustaining the high growth rate in 2016-17 as well, especially when oil prices have started to harden and prospects of world trade growth remain bleak.
PFCE accounted for 55.5% of the GDP in 2015-16. Gross fixed capital formation (GFCF) contracted 1.9% in the March quarter, falling from as high as 9.7% in the September quarter, while export contraction continues, with potential to slow down manufacturing. The fall in GFCF was despite government trying to spend more to boost growth.
Department of economic affairs secretary Shaktikanta Das said the government’s plan expenditure stood at Rs 4.71 lakh crore in 2015-16, exceeding the Budget estimate (Rs 4.65 lakh crore) for the first time after many years. Similarly, capital expenditure rose by Rs 35,000 crore from 2014-15 level to touch Rs 2.35 lakh crore. However, analysts said while the government might have spent more in 2015-16, it will take some time to reflect in the GDP as the national account will capture such improvement only when projects actually start to deliver. Also, the data showed government final expenditure growth slowed to just 2.2% in 2015-16, compared with 12.8% a year before.
Analysts expect good GDP expansion and an 8.5% growth in infrastructure sector in April (improvement over the third consecutive month and the highest growth since November 2014 although on a very conducive base) will provide some leeway to the Reserve Bank of India to keep key policy rates on hold at its next monetary review policy meeting in June. Gross domestic product grew 7.2% in 2014-15.
The good growth rate in the March quarter seems to cloak a worsening investment story. “The consumption story is there because despite two consecutive sub-par monsoons and rural demand not growing we are seeing some growth, but right now the problem more is of investment,” said DK Pant, chief economist at India Ratings. He, however, added that agriculture will help revive demand in both industry as well as services, thanks to good monsoon. The farm and allied sector growth touched 2.3% in 2015-16, compared with a 1% contraction a year before.
Nominal GDP rose 10.4%, compared with 9.1% in the previous quarter, reflecting a pick-up in corporate earnings. For a sample of 1,181 companies (excluding Cairn, Vedanta, banks, financials and oil marketing firms) that have declared their results so far, net profit during the March quarter rose 41.78%, compared with the same period last year, while net sales were up 4.20%. Continued robust corporate earnings will provide a leg-up to nominal GDP growth, which dropped to 8.7% in 2015-16 from 10.8% a year before, in the current fiscal.
There was a 0.5 percentage point gap between the gross value added and the GDP in the fourth quarter (7.4% and 7.9%, respectively). The difference is explained by a sharp contraction in subsidy payout and robust indirect tax collections. The gap was even higher at 1.9 percentage point in December quarter.
NITI Aayog member and agriculture expert Ramesh Chand told PTI that agriculture growth will definitely be more than 6% in 2016-17, if monsoon forecasts hold good. The agriculture ministry is aiming to achieve a record grain production of 270.10 million tonnes in 2016-17 crop year, compared with 253.23 million tonnes in 2015-16.
“Momentum is building up faster than anticipated and there is a demand pick-up on the horizon. This definitely spells out a positive story that there will soon be a recovery in private sector capex,” said Shubhada Rao, chief economist at Yes Bank. GDP growth was helped by a revival in farm output, an improvement in mining and a jump in electricity production. Mining expanded 8.6% in the March quarter, rising from 7.1% in the previous quarter. Electricity, water and gas production grew 9.3% from 5.6% in the December quarter.