Happy ending and twist in the growth story

NEW DELHI: Official statistics suggest the juggernaut of India's economy has started to roll at a clattering pace. But some analysts stayed cautious, keeping in mind the low investment levels. The Central Statistical Organisation (CSO) on Tuesday said the gross domestic product (GDP) - the broadest measure of the economy - had grown at a robust 7.9 per cent in the fourth quarter (January-March 2016), which enabled the government to fulfil its prophecy that growth in 2015-16 would be 7.6 per cent. This is the fastest growth rate since 2011-12, which became the base year for calculating national income statistics under a new methodology that was adopted in January last year.

India has now easily outpaced China, which grew at 6.7 per cent in the March quarter, the slowest growth that the world's second largest economy has had in seven years. In absolute terms, India's GDP stood at Rs 113.50 lakh crore in 2015-16, against Rs 105.52 lakh crore in the year before, showing a growth of 7.6 per cent. "The latest numbers indicate that the government's policies have started to pay off," said Shaktikanta Das, secretary in the department of economic affairs. "With a strong monsoon predicted this year, we expect growth in 2016-17 to be around 8 per cent." The growth revival has been underpinned by the manufacturing sector that saw its growth rate vault to 9.3 per cent against 5.5 per cent last year. Overall, industry growth - represented by manufacturing, mining and construction - rose by 7.46 per cent. Services growth slowed slightly to 8.8 per cent from 10.2 per cent a year ago but the farms reported a growth of 1.2 per cent against a contraction of 0.2 per cent a year ago. The CSO revised the GDP growth rate for the previous quarters of 2015-16: 7.5 per cent for April-June, 7.6 per cent for July-September and 7.2 per cent for October-December. The 7.6 per cent growth rate for 2015-16 was the same as that projected by the CSO in February this year. A section of analysts, however, felt that the frequent data revisions and claims that the country was now the fastest growing major economy in the world should "be taken with a pinch of salt". Shilan Shah, India economist with Capital Economics, said: "Growth in bank lending remains close to its slowest rate in over a decade. The survey data also point to some slack, with firms reporting low rates of capacity utilisation... we should take the official GDP data, and the world-beating rates of growth that they are suggesting with a pinch of salt." India's merchandise exports fell 15.85 per cent during the financial year while its much-vaunted services sector exports fell 9 per cent. Indian exports, which make up for a little more than a fifth of the country's GDP, have contracted for 17 consecutive months, stoking scepticism about the macroeconomic numbers that do not seem to gel with other economic indicators that point to sluggish growth. Anis Chakravarty, lead economist and partner at Deloitte, added: "This latest set of data point to an economy that is still on the path to recovery but is showing signs of growth in certain sectors. However, the figures also showed that while consumption was moving up, investment levels were still low in the economy." "In fact, gross fixed capital formation registered a decline in the fourth quarter as compared to the level a year ago. It can be expected that investment levels may not move up in the short term and even over the medium term, the revival of investment is more likely to be driven by the government's push. The overall narrative for the ongoing fiscal remains contingent on the fate of the monsoon and overall demand levels in the economy," Chakravarty said. Growth in gross fixed capital formation in the fourth quarter shrank to 29.4 per cent from 32.4 per cent a year ago. Officially, growth in the January-March quarter was driven by a rebound in farm output, an improvement in mining and a sharp pickup in electricity production. The farm sector grew by 2.3 per cent from a year ago, compared with a 1 per cent contraction in the December quarter. Rubbishing the views of the Cassandras, others said there were several indicators that industry was on the path to recovery. Sales of passenger cars grew 7.87 per cent to over 2 million units - the fastest growth in the past five years. "What is most encouraging is that growth in the fourth quarter of 2015-16 stands at 7.9 per cent. This is a key indicator that the recovery is gaining momentum. With the government giving a strong impetus to the rural sector in Budget 2016-17 and expectations of a normal monsoon, both demand and investments are expected to further strengthen," said Ficci president Harshavardhan Neotia. Real per capita income rose 6.2 per cent to Rs 77,435. The government data estimated gross fixed capital formation (GFCF), a barometer for investment, at Rs 39.72 lakh crore for 2015-16 at current prices, as against Rs 38.44 lakh crore in 2014-15.