India GDP Growth Beats Expectations in Q4

The Indian economy advanced 7 percent year-on-year in the last three months of 2016, slowing from an upwardly revised 7.4 percent rise in the previous quarter but beating expectations of a 6.4 percent growth. The expansion was mainly driven by a surge public spending and agriculture. The GDP is expected to grow 7.1 percent in the fiscal year ending in March 2017.

Private spending rose 10.1 percent, faster than a 5.1 percent increase in the previous quarter. Government spending went up 19.9 percent, higher than 15.2 percent in the previous quarter. Gross fixed capital formation expanded 3.5 percent, recovering from a 5.3 percent contraction in the previous period. Exports advanced 3.4 percent, rebounding from a 0.9 percent drop in the previous quarter. Imports rose 4.5 percent, following a 7.4 percent fall in the previous period. 

On the production side, the gross value added for public administration, defence and other services expanded the most (11.9 percent compared to 11 percent in Q3), followed by manufacturing (8.3 percent compared to 6.9 percent in Q3); mining and quarrying (7.5 percent compared to -1.3 percent in Q3); trade, hotels, transport, communication and services related to broadcasting (7.2 percent compared to 6.9 percent in Q3); utilities (6.8 percent compared to 3.8 percent in Q3); agriculture (6 percent compared to 3.8 percent in Q3); financial, insurance, real estate and professional services (3.1 percent compared to 7.6 percent) and construction (2.7 percent compared to 3.4 percent in Q3).

The data suggests that the economy was only slightly touched by demonetarization, while the economists had been predicting the gdp growth would go down much more. This can be explained by:
1. downward revision of the growth rate in the last quarter of 2015 (from 7.2 percent to 6.5 percent)
2. 40 to 50 per cent of the economy is in the informal sector and operates almost exclusively in cash while early growth estimates rely on the results of large, formal-sector companies
3.  Indian companies may have attempted to explain illicit cash holdings by stocking up on inventory or over-reporting sales. After all manufacturing growth accelerated sharply to 8 percent from 5.6 percent in the previous quarter.
Lastly, the government claim that private spending rose even more than in the quarter before the cash crunch does not add up to other indicators pointing to the sharp slowdown in both rural and urban consumption.

India GDP Growth Beats Expectations in Q4

Joana Taborda |
3/2/2017 2:06:58 PM