India: Growth surges in January to March period, India's economy expands at fastest pace in six years in FY 2015
June 1, 2016
India’s economy picked up steam in the final quarter of fiscal year 2015, pushing full year growth to a six-year high. GDP expanded 7.9% over the same quarter last year in the January to March period, a notable acceleration from the previous quarter’s 7.2% increase. The improvement came on the back of robust private consumption and a reduced drag from the external sector, as well as a surprising contribution from discrepancies. However, doubts continue to linger over the reliability of the GDP growth series as the economy remains hampered by falling exports and shrinking fixed investment.
On the domestic side of the economy, private consumption remained strong and expanded at the fastest pace in over one year, growing a notable 8.3% in Q4 FY 2015 (Q3: +8.2% year-on-year). The result was likely driven by robust urban consumption, while rural consumption is expected to have remained weak due to the lagged impact of a subdued monsoon. Government spending was broadly stable, recording a 2.9% expansion (Q3: +3.0% yoy). However, fixed investment—a weak spot in the GDP results—swung from a 1.2% increase in Q3 FY 2015 to a 1.9% contraction in Q4 FY 2015, marking the worst result since Q2 FY 2012. Despite robust public investment, private investment has performed below expectations, which likely reflects tight financial conditions and lackluster demand.
The external sector’s performance improved in Q4 FY 2015, although it still dragged on growth. Exports fell 1.9%, a stark improvement from the 8.9% plunge tallied in the previous quarter. Although exports continue to contract, the pace of decline has been slowing. Imports declined 1.6% (Q3: -6.4%). The low-commodity-price environment has caused the value of oil imports to plummet, but the effects are set to fade going forward.
Surprisingly, discrepancies—factors that do not fit into one of the broad GDP components—provided a large positive push to the GDP numbers for the final quarter, perplexing market analysts. Discrepancies contributed 4.1 percentage points to growth in Q4, which is an usually large amount. Even though over one year has passed since the Ministry of Statistics and Programme Implementation (MOSPI) significantly revised its methodology for calculating GDP and the historical data series, market analysts continue to have reservations about the accuracy of the new numbers. While GDP growth picked up from 7.2% in FY 2014 to 7.6% in FY 2015, a comparison with a supply-side calculation of GDP shows a much more modest acceleration. The Gross Value Added (GVA) estimates show that growth inched up from 7.1% in FY 2014 to 7.2% in FY 2015. Commenting on the release, Anubhuti Sahay, Head of South Asia Economic Research at Standard Chartered adds:
“Excluding the role of discrepancies, GDP growth was 5.2% from 7.1% in the previous year, the weakest since FY12. While discrepancies have always played an important role in GDP, it seems that in the past two years GDP ex-discrepancies slowed. FY15 GDP could be revised (over next two years), and might show a reduced role of discrepancies as growth drivers are better redistributed under identifiable categories such as consumption or investment. This will improve the understanding of GDP measure and make it more credible. We will keep a close eye on these revisions, although by the time they are available, they are unlikely to attract much attention.”