India: Economy picks up pace in January-March quarter; however, uncertainty remains over economy's momentum
May 29, 2015
India’s economy accelerated in the fourth quarter of fiscal year 2014/2015, expanding 7.5% over the same quarter of the previous year. The result beat market analysts expectations of a 7.3% expansion and marks an improvement over the 6.6% increase tallied in the third quarter of FY 2014/2015. Q3’s result was significantly revised downward from the previously reported 7.5% expansion.
The quarterly acceleration came on the back of an improvement in both domestic demand and the external sector. Private consumption strengthened notably from the revised 4.2% growth in the third quarter of fiscal year 2014/2015 (previously reported: +3.5% year-on-year) to a 7.9% increase in the fourth quarter. Growth in fixed investment also increased, from 2.4% in Q3 FY 2014/2015 (previously reported: +1.6% yoy) to 4.1% in Q4 2014/2015. However, government consumption swung from a notable 27.6% expansion (previously reported: +31.7% yoy) in Q3 2014/2015 to a 7.9% contraction in Q4.
On the external side, exports contracted 8.2%, which was a deterioration from the previous quarter’s 0.3% fall (previously reported: -2.8% yoy). Imports also deteriorated, falling 8.7%, which contrasted Q3 FY 2014/2015’s 2.8% expansion (previously reported: +1.1% yoy). As a result, the external sector’s net contribution to growth improved from minus 0.8 percentage points in Q3 FY 2014/2015 to plus 0.1 percentage points in Q4 FY 2014/2015.
For the full fiscal year 2014/2015, the economy expanded 7.3%, coming in slightly below the government’s estimate of 7.4% growth but surpassing the 6.9% expansion recorded in fiscal year 2013/2014.
The latest GDP figures come against a backdrop of uncertainty over India’s economy momentum. In February, the government revised the previous data series to reflect new methodology and a change in base year, which resulted in a sharp upward adjustment of the data for the first and second quarter of fiscal year 2014/2015. The large revision raised doubts over the economy’s underlying trend. These doubts still remain after as a comparison of supply-side calculated GDP show that the economy slowed in the fourth quarter of the fiscal year, contrasting the momentum suggested by the GDP by expenditure data. The Gross Value Added (GVA) estimates show that the economy lost steam, falling from 6.8% year-on-year growth in Q3 FY 2014/2015 to a 6.1% increase in Q4 2014/2015.