India yet to overtake China GDP, but we’ll beat them soon: Jaitley

31 May 2015 | Author: | No comments yet »

GDP data for manufacturing may be reasonably reliable: Arvind Subramanian.

A day after official data showed India’s economy grew 7.3 per cent in 2014-15, slightly lower than the advanced estimate of 7.4 per cent, Chief Economic Advisor Arvind Subramanian retains the projection of 8.1-8.5 per cent growth for this financial year.The downturn in the US economy was due in part to a swelling trade deficit caused by a strong dollar and plunging investment in oil exploration following the drop in fuel prices. He tells Indivjal Dhasmana all the factors on which the projection in Economic Survey 2014-15 is based are valid, with a possible exception of the monsoon.

Photo: AFP Gross domestic product shrank at a 0.7% annualized rate in the first quarter, revised from a previously reported 0.2% gain, according to commerce department figures issued on Friday in Washington. Edited excerpts: Growth in output of the agriculture and allied sectors was almost flat in 2014-15 and the sector contracted in the third and fourth quarters. The logic behind the 2015-16 forecast was growth would be greater in 2015-16 relative to 2014-15 by a margin greater than growth in 2014-15 over 2013-14. The reasons for that increase were lower oil prices, the cumulative impact of reforms, easier monetary conditions, less fiscal consolidation and a monsoon that isn’t as bad. To put it differently, if growth could pick up in 2014-15 relative to 2013-14 by about 0.6 per cent (at basic prices) and 0.4 per cent (at market prices) despite a poor monsoon and fiscal consolidation, why would it not pick up by more for all the reasons suggested above?

Last quarter’s contraction was smaller than the 2.1% fall at the start of 2014, when a prolonged patch of bitterly cold temperatures held back the economy. The various research results indicate first-quarter growth has underperformed the rest of the year by about 1.6 percentage points to 1.7 percentage points on average. The Bureau of Economic Analysis this month said it’ll make changes to try to minimize the issue, and take this into account when reporting annual benchmark revisions in July. I believe there are two reasons why these data may be reasonably reliable: IIP indicators have suggested growth of three-four per cent on an annual basis in 2014-15.

But these are volume indicators and at a time when input prices are declining substantially, recall that the level of wholesale prices has declined (negative inflation) six months in a row; volume indicators could be under-stating value-added growth. A widening trade deficit subtracted 1.9 percentage points from growth, the most since 1985, compared with the previously estimated drag of 1.25 points, according to the commerce department’s data. While nominal credit growth has declined, real credit growth (growth adjusted for inflation) has been constant and, perhaps, even shown a slight uptick. This is also true for broader measures of financing for corporates, including non-bank sources such as bonds, ECBs (external commercial borrowings) and NBFCs (non-banking financial companies).

Revisions to incomes showed wages and salaries rose even more than last reported and the saving rate was the highest since the end of 2012, indicating households can unleash some pent-up demand. Still, it marked the weakest reading in six months. “The index is still quite high,” Richard Curtin, director of the Michigan Survey of Consumers, said on a conference call after the figures were released. We have seen that the stalling rate of projects has declined but the question is whether new investments, both in the public and private sectors, are seeing a strong turnaround. During the latter half of the month, “I expected confidence to inch upward and I still think that is likely over the months ahead.” The economy is poised to pick up this quarter.

A Bloomberg survey of economists in May predicted growth will accelerate to a 2.7% pace in April through June, with household consumption expanding 3.2%. In 2014-15, consumption growth has remained broadly stable — government consumption has declined, reflecting the sharp fiscal consolidation; exports have declined, reflecting the difficult international environment; and capital formation has increased. Hopefully, the pick-up in investment will be sustained, especially if public projects are implemented quickly and stalled projects resolved and accelerated.

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