India's Gross Domestic Product (GDP) grew at 7.2%, rebounding sharply from a three-year low just six months ago, and beating China to regain the fastest growing economy spot in the October-December period of the year 2017. Here's why
India’s Gross Domestic Product (GDP) grew at 7.2%, rebounding sharply from a three-year low just six months ago, and beating China to regain the fastest growing economy spot in the October-December period of the year 2017. Driven by government’s final consumption expenditure, India recorded a higher Gross Fixed Capital Formation (GFCF) growth at 12% in Q3 FY18 as against 8.7% in the previous quarter, and a sizeable uptick was witnessed in different sectors including agriculture and real estate.
Meanwhile, China, world’s second-largest economy, is undergoing a long-term slowdown, with its President Xi Jinping mainly focused on poverty, debt-risk, and pollution reduction. China has recorded a GDP growth of 6.8% in the October-December period of the FY17-18.
According to ICRA, India’s GDP growth at 7.2% could be because of the double-digit expansion in production of capital goods, the sharp rise in the capital spending of the government and the modest pickup in the capital spending of the state governments in Q3 FY18.
The last time India beat China was in the October-December period of the year 2016, but only for just one quarter, or three months. While India follows the financial year, China follows the Calendar year. In the January-December, the 12-month period in 2017, China recorded a growth of 6.9%, and for the next calendar year, it has set its target at 6.5%, “omitting an intention to hit a faster pace if possible”, according to Bloomberg.
While India is seen growing at 6.6% in the 12-month period between April 2017 and March 2018, trailing China, but in the next 12 month period, India’s growth is expected to grow above 7%, while China has put it at 6.5%.
According to BofA Merrill Lynch Global Research, India’s nominal GDP, in the next 10 years, could beat become the third largest in the world overtaking France, the UK, Germany and Japan. Meanwhile, Morgan Stanley has said that in the next 10 year, India’s GDP growth will top $6 trillion mark. Currently, India has already surpassed Canada, Italy, Russia, Brazil to emerge as the second largest BRIC economy after China.
India’s sharp rebound at 7.2% came at the time of global slowdown after the country showed signs of recovery from two big structural changes — demonetisation and the indirect tax regime of the Goods and Services Tax (GST). In the April-July quarter, India’s economic growth slumped to a three-year-low of 5.7% mainly due to inventory destocking ahead of the implementation of the GST.