GDP Growth: In February, the Central Statistics Office had said India grew faster than China in the third quarter of the last fiscal.
In February, the Central Statistics Office had said India grew faster than China in the third quarter of the last fiscal, but on Friday it almost changed tack and said this feat was actually achieved in the last quarter, even as economists only became more doubtful whether the CSO’s new-series data were indeed consistent with reality. While high-frequency data suggested a marked sequential slowdown from Q2 itself that accentuated in Q4 than in Q3, the CSO put the Q4 real GDP growth at an impressive-looking 7.5%, faster than China’s 7% in the first quarter of 2015, and the expansion in the previous quarter at 6.6%, down sharply from 7.5% estimated just two months ago.
With significant changes in the GDP growth figures for the first and second quarters also to 6.7% and 8.4%, respectively — from 6.5% and 8.2% estimated earlier — overall economic growth in FY15 has now been estimated at 7.3%, compared with 7.4% assumed in the advance estimate in February. CSO officials attributed the large revisions, which also reflected in estimates of real gross value added (GVA) in major sectors like manufacturing, agriculture and construction, to additional data that came in after the advance estimate.
While growth in real GVA for FY15 is estimated at 7.3%, among major sectors manufacturing showed a rather sharp pick-up from the previous year — the growth in GVA in the sector rose to 8.4% in Q1 and after a dip to 3.6% in Q3, again to a healthy 8.4% in Q4. Agriculture, however, contracted in Q3 and Q4 — by 1.1% and 1.4%, respectively.
Reflecting the sharp cut in expenditure by the Centre in the last quarter — capital spending was some Rs 1.2 lakh crore less than initially budgeted — government consumption expenditure, which rose an annual 27.5% in Q3, declined 7.9% in Q4 to form just 8.2% of GDP (at 2011-12 prices).
Gross fixed capital formation, one of the closest proxies of investment, and making nearly 30% of GDP, grew 4.6% in FY15 compared with 3% in FY14 and -0.3% in FY13, signalling gradual recovery.
Chief economic adviser Arvind Subramanian, who earlier in the week listed out the positives like a decline in “(project) stalling rate” and “start of a pick-up”in real bank credit growth in Q4FY15, said Friday’s data had borne out his assumptions. Sectors that are more amenable to government policies such as manufacturing and services had done well, he said, adding that agriculture, vulnerable to the monsoon, and exports, susceptible to global demand and prices, remained the laggards. The farm sector would do better in the current fiscal, he said.
Subramanian, who has been advocating increased public spending to spur an incipient pick-up in private consumption, recently said the budgeted levels of capital expenditure by the Centre and states was to increase from 4.6% of GDP in FY15 to 5.1% in the current fiscal. The finance ministry said in a statement: “..manufacturing growth increased substantially from 5.3% in FY14 to 7.1% in FY15 while services growth increased substantially to 10.2% in FY15 from 9.1% in FY14. Within services, financial, real estate and professional services increased from 7.9% in FY 2013-14 to 11.5% in FY 2014-15.”
Nomura said: “Overall, (the new data) depict an economy that is recovering, but at a very gradual pace. We expect the cyclical sectors to show a gradual recovery in the coming quarters owing to higher disposable income, easier financial conditions, rising profit margins and continued momentum on project clearances. We expect growth to pick up to 8% y-o-y in FY16 from 7.3% in FY15. Weak monsoons are a key downside risk to our growth projections. We expect the Reserve Bank of India to cut the repo rates by 25 basis points on June 2, followed by a prolonged pause until end-2016.”
Subramanian too was a bit cautious on the FY16 estimate when he said that “a slightly bolder thing that we said (earlier) was that FY16 will be better than FY15 by a margin greater than between FY15 and FY14”. According to Shilan Shah, India economist, Capital Economics, London, “At face value, Friday’s GDP figures suggest that India is the fastest-growing major economy in the world. In reality though, the GDP data remain wildly inconsistent with numerous other indicators that point to continued slack in the economy. big picture is that the official GDP data are overstating the strength of the economy, most probably by a significant margin.” Despite the contraction in exports in five months to April, there was an improvement in net exports in Q4 as the imports have come down sharply, but it was still to turn positive as some analysts expected.