GDP at 7.3%: India’s economy has turned the corner, but one wrong step could …

30 May 2015 | Author: | No comments yet »

Arun Jaitley rebuts Manmohan’s comments, says economy not fragile.

So the Narendra Modi government gets a nice anniversary present. Dismissing former Prime Minister Manmohan Singh’s comments on the state of Indian economy, Finance Minister Arun Jaitley on Friday said an economy growing at fastest pace in the world cannot be ‘fragile’. “In a global slowdown situation, to have the fastest growth rate in the world certainly does not make Indian economy fragile,” he told reporters here on Friday.With the provisional estimates of GDP data at 7.3 per cent for 2014-15 just a notch lower than the advance estimates of 7.4 per cent, a further upswing in the economy is expected in the current fiscal despite forecast of a deficient monsoon and poor growth in private investments.India’s gross domestic product (GDP) grew at 7.5% during the January-March period, faster than China’s 7% in the same period, mainly on account of improvement in services and manufacturing sectors. Private final consumption expenditure (PFCE) grew marginally by 6.3 per cent in 2014-15 against 6.2 per cent in 2013-14, according to the Central Statistics Office data on Friday.

As this report shows, the sectors which have done much better in 2014-15 than in 2013-14 are manufacturing, the utilities (electricity, gas, water supply etc), construction (though there has been a decline quarter on quarter) and financial, real estate and professional services. India celebrated faster growth than China in the December quarter, but on Friday the CSO sharply revised growth down to 6.6% from 7.5%, further distorting the picture. Questions will be raised about the manufacturing growth figure of 7.1 per cent since the index of industrial production (IIP) showed a growth of just 2.3 percent.

For the fourth quarter, it contracted by 14.41 per cent (quarter on quarter) on the back of expenditure checks by the government to control its fiscal deficit. Some economists and even the Reserve Bank of India fear that it may not reflect the actual growth and that the higher growth rates are driven more by statistical factors. Jaitley said the services sector is moving towards a double digit growth rate while there is an upward movement in the manufacturing sector. “Therefore, it holds a good promise for Make in India programme”. Depends on who you ask, what indicators you look at and, more recently, how much you buy into the new GDP series.” “Here is a quick stab at the question.

Manufacturing and services sector indicate that we have a potential to grow at 8-9 per cent and even more than that,” Jaitley said. “If global situation improves, Indian exports will automatically improve,” he said, adding that if agriculture and exports improve India will be able to achieve its short term growth target of 9 per cent and beyond. Joshi added that he expects a rate cut of 25 basis points by the RBI next week. “The RBI takes into account a host of indicators, most of which at the ground level continue to show a weakness — be it credit, IIP, profit margins or private investments,” he said. Certainly the government can take credit for some of the decline in inflation, though the fall in global oil and commodity prices also played its part. On the other hand, the remaining 40% of GDP, comprising of manufacturing, utilities and trade/transportation, has inched up from depressed levels, though upticks are gradual at best,” Bhandari added. According to Devendra Pant, chief economist at India Ratings, the fact that food inflation did not shoot up in March and April after the unseasonal rains has given some confidence to the rational consumer.

A labor dispute that disrupted shipping at many West Coast ports has been resolved, which should alleviate supply bottlenecks that depressed manufacturing activity. In fact, since the country pulled out of the recession in 2009, there have been three quarters when GDP has gone negative — all in the first quarter. That has raised questions about whether the government is having trouble seasonally adjusting activity in the winter and is overstating first-quarter weakness. STRONGER DOLLAR: A bigger-than-expected trade deficit was a key reason that the GDP was revised from a tiny 0.2 percent gain to the 0.7 percent decline. Industry is hoping for public investment to lead the way (Subramaniam has been talking about this), but the compulsions of fiscal consolidation may prove a hurdle.

The agricultural story is weak – gross value added (GVA) in the sector has been declining quarter on quarter, with a 1.4 per cent decline in Q4, which has to do with the unexpected rains. Agriculture accounts for only 15 per cent of GDP and may not pull down the aggregate numbers hugely, but rural demand still drives overall demand and so is an area of concern.

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