India’s GDP grew 7.5% in Q4; 7.3% growth for 2014-15 misses advance estimates

The Indian economy grew 7.5 per cent in the fourth quarter of last fiscal ended March 31, 2015 over the year ago period, making it the fastest growing large economy in the world. Chinese economy had grown 7 per cent in the same period.

The growth last quarter was better than revised estimate of 6.6 per cent rise in GDP in the third quarter ended December 31, 2014. Previously, Indian economy was estimated to have grown 7.5 per cent in Q3 FY15. This made India surpass China as the fastest growing economy. Although the revised estimates shows India continued to be behind China in Q3 it overtook it last quarter.

The Central Statistical Organisation (CSO), which collects national economic data, however, revised upwards the growth estimate for Q2 from 8.2 per cent to 8.4 per cent and for Q1 from 6.5 per cent to 6.7 per cent.

Meanwhile, it moderated its GDP growth estimate for the full year (2014-15) from previous projection of 7.4 per cent to 7.3 per cent. Chinese economy had expanded 7.4 per cent for the 2014 calendar year.

India is now expected to overtake China as the fastest growing large economy over a full fiscal this year. This is partly to do with slowdown in Chinese growth.

Indeed, the change in base year to 2011-12 along with a change in methodology earlier this year had significantly catapulted the growth estimates of Indian economy.

While data from high frequency indicators indicate that economy has been fast losing traction, GDP data has been indicating otherwise. Industrial growth in the economy has remained subdued while the GDP figures accounted for some of the decline in industrial production but the data still stands in contrast with IIP.

The new figures by the CSO have been puzzling for the markets as there is no historical data available for the new calculations to determine what stage of the business cycle is the economy operating in. The International Monetary Fund had sent a team to India to review the GDP data.

However, international organisations expect India to grow at a robust pace in the coming years. A UN report released this month pointed out that India will grow at 8.1 per cent this year, in line with the government's estimate of 8.1-8.5 per cent for 2015-16. Others are projecting the economy to expand by 7.5-8 per cent.

While the Indian economy is set to overtake China this year, weak manufacturing and infrastructural constraints still pose a problem for the country to compete with China which is five times its size.

Drastic slowdown in agriculture and mining

Sectoral data shows that the agrarian economy hit rock bottom last year growing at just 0.2 per cent as compared to 3.7 per cent in the previous fiscal. The government's focus to streamline subsides in the sector combined with the unseasonal rain patterns played havoc with the sector.

Growth in mining & quarrying also more than halved with the sector expanding at just 2.4 per cent compared to 5.4 per cent the previous year. Growth in trade, hotels, transport, communication and services related to broadcasting also slowed down last year.

Financial, real estate & professional services was a key driver of growth in the economy and grew at 11.5 per cent for the full year 2014-15 as against 7.9 per cent in 2013-14.

Manufacturing on the other hand expanded at 7.1 per cent, higher than the 4.2 per cent in 2013-14. The data comes on the face of less than spectacular rise in industrial activity as captured by the Index of Industrial Production.

With almost two thirds of the population dependent on agriculture, the government will have to shift its focus to agriculture as well look at more incentives to boost manufacturing.

The per capita income in real terms (at 2011-12 prices) during 2014-15 is pegged at Rs 74,104 lower than the advanced estimate figure but higher compared to Rs 69,959 for 2013-14. The growth rate in per capita income was at 5.9 per cent during 2014-15, as against the previous year's estimate of 5.4 per cent.

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