Indian economy likely to grow 7.6% in FY16

Indian economy likely to grow 7.6% in FY16

India’s economy is forecast to grow by 7.6% in 2015-16, marginally higher than the finance ministry’s estimate, making it the fastest growing major economy in the world.

Data released by the Central Statistics Office (CSO) on Monday showed the economy grew 7.3% in the October-December quarter, slower than the previous quarter’s upwardly revised 7.7% expansion.

Growth for the July-September quarter was revised to 7.7% from the previously reported 7.4%. April-June quarter was revised upwards to 7.6% from 7% earlier. Full growth for 2015-16 was more or less in line with estimates and higher than the 7.2% expansion in the previous year.

While the economy slowed a little in the December quarter, growth was faster than China’s 6.8% expansion in the third quarter. The finance ministry expects the economy to grow by 7.1-7.5% in the current financial year and then accelerate in the years ahead.

Several multilateral agencies expect growth in the 7-7.6% range for the current financial year. The Indian economy, Asia’s third largest, is seen as a bright spot against the backdrop of a gloomy global economy and the latest numbers will give some comfort to the authorities, who are battling to revive growth and create jobs.

Policymakers said the data showed that the economy was turning around. “The economy was doing well and today’s data confirms that it is doing well against the backdrop of slowing growth globally. The second quarter number has also been revised upwards,” Jayant Sinha, minister of state for finance, told TOI.

The government changed the way it measures the economy last year, saying it was in line with global practices. While the government and the Reserve Bank of India have stood by the numbers, several agencies and private economists have raised doubts about the methodology.

They say the robust numbers are out of sync with other data such as exports, credit offtake, industrial output growth, which show that the economy still remains sluggish. Exports have contracted for 13 consecutive months, while two successive years of patchy monsoon rains have also dented rural demand, a strong pillar for overall economic growth.Low inflation translates into a nominal GDP growth of 8.6% for the current fiscal, compared to an expansion of 10.8% in 2014-15. A lower nominal GDP growth is expected to make it tougher for the government to meet the fiscal deficit target of 3.9% of GDP set for the current fiscal.

The farm sector is expected to grow 1.1% in 2015-16 compared to a contraction of 0.2% in 2014-15. The manufacturing sector is expected to grow 9.5% in 2015-16. In the third quarter the sector grew 12.6% compared to the previous quarter’s 9% expansion. The farm sector contracted 1% during the third quarter compared to a growth of 2% in the previous quarter.

“The surprisingly robust pick-up in manufacturing growth in Q3FY16 relative to Q2FY16 belies the trends available from various high frequency volume based indicators, including the IIP prints for October- November 2015,” said Aditi Nayar, senior economist at ratings agency ICRA.

She said despite the robust expansion in the Union Government’s capital expenditure, growth of gross fixed capital Formation slowed considerably to a five-quarter low 2.8% in the third quarter, highlighting the muted trend in private sector investments. Private consumption expenditure remained the key engine of growth in the third quarter, despite the sluggish rural sentiment. “With the considerable slowdown in investment growth and pickup in expansion of both private and government consumption expenditure, the composition of GDP growth was unfavourable in Q3FY16,” she said.
-TNN | Feb 9, 2016