Proud moment! India again fastest growing economy – How this happened? Find out

Proud moment! India again fastest growing economy – How this happened? Find out

A dramatic rebound in investments — a growth of 12% in gross fixed capital formation (GFCF) on a (revised) strong base of 8.7% could not have materialised without substantial private participation — helped the Indian economy to grow at a better-than-expected pace of 7.2% in the third quarter of this fiscal. Strong shows by manufacturing, agriculture and construction sectors and services that largely held ground have boosted growth. The Central Statistics Office (CSO) also revised the Q2FY18 GDP expansion to 6.5% from 6.3% earlier, and upped its advance estimate of the rate of GDP expansion for 2017-18 to 6.6% from 6.5% seen earlier. GFCF had last grown at faster pace in Q1 FY17, at 15.9%, now revised from 7.4%.
India regained its status as the world’s fastest-growing major economy in the third quarter, surpassing China’s growth after a gap of one year. The Chinese economy grew 6.8% in the October-December quarter. The pick-up in gross domestic product (GDP) growth to the fastest pace in five quarters — which suggested the economy has completely recovered from the pains of demonetisation — was despite a significant slowing of private consumption, the economy’s principal engine.

Private final consumption expenditure grew just 5.6% in Q3FY18 compared with 6.6% in the previous quarter. The GDP growth in Q3FY18 was also helped by higher goods and services tax (GST) collections — the CSO was earlier more cautious of GST revenues as the tax was stabilising — and lower subsidy outgo in the quarter: The gross value added (GVA) for the quarter expanded at 6.7%, 50 basis points lower than the rate at which GDP expanded. The CSO also undertook significant revisions of the aggregate and sector-wise numbers of several earlier quarters. For instance, GDP and GVA growth rates for Q3FY17 were revised to 6.8% (from 7% earlier) and 6.9% (6.7%), respectively; GDP and GVA growths in Q2Fy17 have been revised to 7.6% (7.5%) and 7.2% (6.8%), respectively. Separately, government data showed eight specified infrastructure sectors witnessed an annual growth of 6.7% January, compared with 4.2% in December. Drastic base revisions across quarters influenced analysis of the state of the economy. Growth in GFCF jumped 12% in the third quarter, even on a relatively unfavourable base (it had expanded a revised 8.7% in Q3FY17), while expansion in private final consumption expenditure — a key driver of economic growth in recent years — has slowed down to 5.6% even when its base was revised down to 9.3% instead of 11.1% reported earlier.

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Analysts said the double-digit growth of capital goods, the sharp rise in the government’s capital spending (it doubled to Rs 90,207 crore in Q3FY18 from a year before) and the modest pick-up in the capital spending of the state governments in Q3FY18 may have contributed to the 12% expansion in gross fixed capital formation in Q3FY18. “However, since the value of new investment projects and the value of projects completed recorded a contraction in Q3FY18, it may be premature to conclude that a broad-based revival in investment activity has commenced,” said Aditi Nayar, principal economist at Icra. The finance ministry said the second advanced estimates indicate a “broad-based and significant acceleration of real economic activity”. It said growth acceleration has been sectorally broad-based with manufacturing growth estimated at 8.1% for Q3FY18, up from 6.9% in the second quarter. Growth in construction, which was hurt by demonetisation, bounced back to 6.8% in Q3FY18 from 2.8% in the previous quarter. It said the sharp jump in gross fixed capital formation herald an “improvement in the investment climate”.

While growth is expected to pick up in the next fiscal, challenges remain. “Recent developments like more stringent NPA guidelines and unveiling of scams would reduce the lending capacity of banks, and to that extent, growth may suffer,” said Rupa Rege Nitsure, group chief economist at L&T Finance Holdings. Higher oil prices and increased pressure of market borrowings from both the central and state governments have already increased the cost of borrowings via bond markets and this is likely to hit private investment and growth further, she added. DK Pant, chief economist at India Ratings & Research, said the Reserve Bank of India could continue to hold on to the rates. “A change in their stance will depend on how the monetary authority looks at inflation panning out in the next three to four quartres,” he said.

 

Source by financialexpress..

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