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Economic Survey expects Indian GDP to grow as much as 8.5% in 2015-16

27 February, 2015

The government’s Economic Survey presented a still rosier picture of the Indian economy with real Gross Domestic Product (GDP) growth estimated to grow in the 8.1-8.5 per cent range in the coming fiscal. It said that the growth has been anchored on domestic demand but investment needs a stronger footing and indicated that there is a case for reviving targeted public investment as an engine of growth in the short run to complement and crowd-in private investment.

The statistical arm of the government had recently revised base year and methodology of calculation for GDP which showed that the Indian economy was to be the fastest growing economy in the world clocking 7.4 per cent for the current fiscal, overtaking even China. The latest Survey shows how it is expected to accelerate further in the coming year.

The 30-stock benchmark Sensex rose over 1 per cent after the Survey was released.

The Survey highlighted that macroeconomic fundamentals for 2014-15 have improved with inflation declining 6 percentage points since late 2013. It also pointed out that reduction of current account deficit from a peak of 6.7 per cent of GDP in the third quarter of 2012-13 to about 1.9 per cent in the first half of this fiscal year has made India an attractive investment destination well above most other countries.

The Survey listed various reform measures like de-regulation of diesel price, taxing energy products, replacing cooking gas subsidy by direct transfer on a national scale, passing an Ordinance to reform the coal sector via auctions, increasing the FDI caps in defense, etc that have contributed towards making India a more favourable destination and has pumped up expectation of a higher growth rate.

The expected high growth rate in the coming year in the favourable economic environment has created a historic movement of opportunity to propel India into a double-digit growth trajectory to attain the fundamental objective of “wiping every tear from every eye” of the vulnerable and poor people of the country, the Survey says.

Indian economy last posted double digit growth in 2010 when the country grew at a staggering 10.3 per cent on yearly basis. However, this was partly due to a bounce back supported by fiscal moves after a particularly bad previous year when the country was battered due to the global financial crisis.

The Survey also highlighted some of the lag indicators that India needed to check to make sure that the economy stays on course of double digit growth in the future. While the recent upturn in the economy has come from the domestic demand exports and imports have remained subdued.

Also the survey lays emphasis on the savings that have declined from 33.9 per cent of the GDP to 30.6 per cent last year. It also cautions about the fall in investments reflected by decline in Gross Fixed Capital Formation from 38.2 per cent of the GDP in 2011-12 to 32.3 per cent in 2013-14.

The Survey said the key will be the response of savings to improved price and financial market stability, and of investment, particularly in the crucial infrastructure sector, to reform efforts of the government that are underway.

“The savings-investment dynamics will be crucial for the growth to strengthen further in the coming years, in addition to reversal of the subdued export performance being currently witnessed,” it said.

On the supply side, there are concerns about tentative growth patterns in construction and mining activities that need to be addressed to. It pointed that the farm sector suffered from a relatively poor monsoon, but there are no indications of its spillover in the coming year.

“The improving rate of value addition in the economy, represented by the ratio of value added to output, and the falling incremental capital output ratio indicate better resource use in production,” the Survey said.

As the new government is to present its first full year budget, the Economic Survey states that it appears that India has reached a sweet spot and that there is a scope for big bang reforms now.


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Economic Survey expects Indian GDP to grow as much as 8.5% in 2015-16

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