India GDP grows 7.4% in July-Sept: Check out 5 graphics that explain key trends

By Rajesh Pandathil and Kishor Kadam India’s GDP grew 7.4 percent during the July-September quarter this year, government data showed today. This is largely in line with the estimates. “It’s neither a positive surprise nor a negative surprise. Growth is tracking as per RBI’s trajectory of between 7 percent to 7.5 percent for the full year. That’s where the consensus number is,” Ashutosh Datar, economist, IIFL Institutional Equities, was quoted as saying in a Reuters report . He said it’s neither an alarming signal nor a sign that India is growing faster than estimated. “Also there is need to be cautious on rate cuts. It doesn’t change anything. No change expected tomorrow (from the RBI),” he said. Anis Chakravarty, Senior Director & Lead Economist, Deloitte in India, concurs with Datar as he feels the numbers are unlikely to affect the RBI’s decision in any way tomorrow as they remain in line with the central bank’s own range. “We expect the RBI to be on hold for sometime,” he said. Here are five graphics that explain the key figures in the GDP data: The above chart shows that though the July-September GDP has grown from the quarter earlier, it is actually much lower than the year-ago figure. The big surprise in the numbers is the growth logged by the farm sector. At 2.2 percent, the growth though low is better than both the year-ago figure (2.1 percent) and sequentially (1.9 percent). This despite the 14 percent deficiency in monsoon this year. The 7.4 percent GDP growth is supported by the 9.3 percent growth in the manufacturing sector. Explaining the sectoral break-up, Chakravarty of Deloitte said the fine print had some encouraging numbers, as industry is clearly showing a revival with manufacturing growing at 9.3% (YoY) compared with 7.2% (YoY) in the previous quarter. According to him, the agriculture growth is muted while growth in services was mixed. Financial services showed a slight improvement while the category of trade, hotels and communication moderated from the previous quarter. Government services expanded at a faster clip owing to higher expenditure levels by the government in the first half of the fiscal year. “The data shows that industry is picking up which is also in line with the IIP numbers and we expect this gradual improvement to continue on account of higher urban domestic demand and some pick up in investment activity,” he said. Gross fixed capital formation, a figure that shows the capital investment, has grown marginally quarter on quarter basis - from 27.8 percent of GDP to 28.3 percent of GDP. A year ago, the figure stood at 28.9 percent and in the second-quarter of 2013-14, it stood at a much better 30.5 percent. “The growth in gross fixed capital formation is not too much of an increase,” Soumya Kanti Ghosh, chief economist, SBI, told CNBC-TV18. He does not expect the activity in the construction sector to pick up in the near term quarters. The government’s expenditure is picking up gradually. From 8.9 percent of GDP in fourth quarter 2014-15, it grew to 11.9 percent in the first quarter this year and then to 13.8 percent in July-September. This is better than the year-ago, when the spending formed 13.7 percent of GDP. One good thing is that the core sector has managed to maintain the growth momentum. As the graphic above shows, September and October witnessed 3.2 percent growth. The eight core sector industries are coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity. Rishi Shah, Economist, Deloitte in India, notes that there were some improvement as coal production bounced back to 6.3 percent from 1.9 percent last month while cement production jumped to 11.7 percent from a contraction of 1.5 percent probably on account of anticipation of higher construction activity especially in the roads sector. “Encouragingly, electricity production also came in at a healthy 8.8% after an impressive showing in the last month wherein it printed in at 10.8 percent. Going forward, we are likely to see some gradual improvements in the core industry as overall investment activity increases,” he said.