Q4 GDP growth at 7.5%; economy grows at 7.3% in FY15

30 May 2015 | Author: | No comments yet »

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

NEW DELHI: The Indian economy expanded 7.3% in the year ended March, in line with the initial forecast and marginally higher than 6.9% recorded in the previous year, pointing to a soft recovery and strengthening the case for a rate cut on June 2 when Reserve Bank reviews monetary policy.

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.The US economy got off to an even weaker start this year than first thought, the government reported Friday, as economic activity contracted because of a more dismal trade performance and continued caution by businesses and consumers alike.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. The 0.7 percent annual rate of decline in economic output in the first quarter of 2015 was a reversal of the initial 0.2 percent advance for the period reported last month by the Commerce Department.

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. Although statistical quirks and one-time factors like wintry weather in some parts of the country played a role, as did a work slowdown at West Coast ports, the lackluster report for January, February, and March underscores the economy’s continuing inability to generate much momentum. 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. China’s economy expanded 7.4% in the 2014 calendar year. “There is a huge scope with all the steps the government has taken and will take in the course of the year.

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”. Economists at Goldman Sachs noted that the change in the trade balance shaved 1.9 percentage points off overall growth last quarter, the largest quarterly drag from net exports in three decades.

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. 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.

Those gains have moderated more recently and are likely to remain under pressure as the stronger dollar makes US goods more expensive for overseas buyers. 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.

Still, the weak start for the year is a crucial reason that the Federal Reserve has pulled back from any plans to raise short-term interest rates in June, with officials now suggesting that the first rate increase from near zero is not likely to come until September or even later this year. The real estate market has also been robust as of late, with a measure of pending home sales last month hitting a nine-year high, according to data released Thursday by the National Association of Realtors. That has raised questions about whether the government is having trouble seasonally adjusting activity in the winter and is overstating first-quarter weakness.

The government appeared satisfied with the way the economy was performing. “The encouraging part of the data is the growth in manufacturing to 7.1% from last year’s 5.3%, which would also mean that we are creating jobs in our growth path,” Finance Secretary Rajiv Mehrishi said. The statistics department dismissed concerns over data. “The MCA (ministry of corporate affairs) database allows us to capture a wide range of smaller and medium enterprises unlike earlier when only 5,000 listed companies would be tracked. 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.

There were large revisions in numbers when ASI (Annual Survey of Industries) data would come out earlier because it provided larger coverage,” Anant said. 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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