By Dinesh Unnikrishnan and Kishor Kadam
India’s Gross Domestic Product (GDP), for fiscal year 2016 has been revised upwards from earlier estimates of 7-7.5 per cent projected in mid-year economic review to 7.6 percent and as compared with revised estimate of 7.2 per cent in the previous fiscal year. The growth is expected to be contributed largely from the growth in the manufacturing sector.
A section of economists, however, are skeptical about the growth picture on account of a protruding disconnect between the GDP and other macro numbers.
"The new GDP series and the information that it is conveying, not just in terms of levels but also in terms of the direction, seems very counter-intuitive," said Ritika Mankar Mukherjee, economist at Ambit said.
"We maintain our point of view that GDP growth data is being overestimated by the CSO and will eventually be revised downwards as the first, second and third estimates are published," Mukerjee said.
The GDP growth, for the October-December quarter, stood at 7.3 per cent, a tad lower than 7.4 per cent in the preceding quarter, but in line with estimates of economists. The median estimate forecast by economists in a Reuters poll had predicted a growth of 7.3 percent in the quarter.
At 7.3 per cent growth, India will be the fastest growing major economy in the world overtaking China (which grew at 6.8 per cent in the comparable period).
The government has also revised the Q1 GDP numbers to 7.6 percent from 7 percent and in Q2 to 7.6 percent from 7.4 percent. In gross value added (GVA) terms, the government expects the current fiscal year to close at 7.3 percent.
The upward revisions for two quarters have surprised economists, prompting them exercise caution on these numbers since the data is likely to get revised again.
Remember, the fiscal year 2015 GDP growth was revised downwards to 7.2 percent from 7.4 percent estimated provisionally. In the third quarter, the manufacturing sector grew by higher-than-expected 12.6 percent compared with 9 percent in the preceding quarter, construction grew at 4 percent compared with 1.2 percent while the agriculture sector logged a negative growth of 1 percent as against 2 percent in the preceding quarter.
“Barring the positive surprise on manufacturing, the numbers are broadly in line. Consumption is holding up, which is a good news. A growth of 7.3 percent is slightly higher than what I expected,” Gaurav Kapur, economist at RBS bank said. “For the full year, I expect the growth to be around 7.4 percent,” Kapur said.
The Index of Industrial Production (IIP) for November had slipped to a four-year low of negative 3.2 percent and core sector industries growth, for December , fell to 0.9 percent from 3.2 percent on a y-o-y basis as production of crude oil, natural gas and steel sectors declined.
The lackluster growth in the core sector and manufacturing segment throughout the year has worried economists. “There is clearly a loss of momentum in growth in the second half of this year,” said Sajjid Chinoy, chief economist at J P Morgan said.
Gross Fixed Capital Formation
There is a slight decline in the Gross Fixed Capital Formation in the third quarter, but not a major slump. The number fell to 27.8 percent as a percent of GDP in the December quarter from 30.5 percent in the previous quarter. In the recent quarters, the government had increased the public spending to push growth in the manufacturing sector. But economists are skeptical if the government can continue with the spending in the fourth quarter too since it has to take care of the fiscal roadmap.
The private consumption has held up largely in the third quarter though it slipped marginally to 59.5 percent in Q3 as compared with 59.6 percent in Q2. Economists expect the consumption to drive the overall growth in 2016-17 especially when the 7th pay commission wage proposals take effect, putting more money into the household kitties.