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.

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.

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. Our potential to grow into a higher league is certainly there,” FM Arun Jaitley said, adding the economy had been held back by the agriculture sector because of a poor monsoon last year, calling for greater investment in irrigation.

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. 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.

The numbers showed a slight pickup in investment as well with gross fixed capital formation, a measure of investment, rising 4.6% in FY15 compared with 3% in FY14. 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. 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.

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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