India maintained its title of being the fastest growing major economy in the world with the gross domestic product (GDP) growing at 7.7% for the fourth quarter ending March 31, well ahead of China's 6. 8% economic growth in the same quarter.
However, India's national income for the whole fiscal year has come lower at 6.7% compared to 7.1% last year. This was mainly due to the impact of demonetisation and botchy implementation of the new indirect tax – goods and services tax (GST), which dragged down the GDP growth in the first two quarters of the current fiscal.
The economic growth has picked up from the October-December quarter, when it grew at 7% (revised from earlier provisional 7.2%). The GDP growth in the first and the second quarters were 5.7% and 6.3%, respectively.
D K Srivastava, chief policy advisor, EY India, said the "overall picture" in the last quarter was buoyant because of an upswing in manufacturing, construction, trade and services sectors.
"The Q4 (fourth quarter) shows an overall picture that is much more buoyant. It is mainly led by –on the output side – manufacturing, construction, trade and services (mainly finance) sectors. With a high growth rate in these four sectors, overall growth appears to be robust. This should continue to reflect in the growth in the coming quarters," he said.
As per the statistic released by the government on Thursday, agriculture grew by 4.5%, manufacturing by 9.1% and construction by 11.5%.
According to Srivastava, a visible upside risk was "clear in the investment pick up" in the last quarter.
"In real term, overall investment appears to be close to 36%, which is a historical high after 2013-14. That is a very strong upside," said the EY economist.
Aditi Nayar, vice president and principal economist at credit rating agency Icra, however, felt that revival in investment was not broad-based; "With fresh capacity being added by the private corporates in limited sectors, we maintain our view that the revival in investment activity is not broad-based".
According to her, the 9% growth of capital goods and the expansion in capital spending for the months of January and February could have led to the healthy expansion of gross fixed capital formation (GFCF) in the quarter gone by.
"However, other indicators offer differing trends, such as the 7.1% contraction observed in the capital spending of a sample of 10 state governments (Chhattisgarh, Gujarat, Haryana, Kerala, Odisha, Punjab, Rajasthan, Telangana, Tamil Nadu and Uttar Pradesh) in Q4 FY2018. Moreover, the value of new projects and completed projects contracted on a year-on-year (YoY) basis in Q4 FY2018," she said in a statement issued by Icra.
Ranen Banerjee, partner and leader - public finance and economics, PwC India, said that while the high GDP growth in the fourth quarter was on the expected line, the economy could encounter internal and external headwinds in the coming quarters.
"We should, however, be wary of the headwinds the economy faces in the coming quarters from higher crude prices feeding into inflation and rising inflation expectations. We hope the Monetary Policy Committee (MPC) would not press the panic button that could create further friction on growth rate and would continue to hold on to the interest rates," said the PwC economist.
Anis Chakravarty, lead economist and partner, Deloitte India, also cautioned against downside risks that could play out going forward.
"Despite a general upside sentiment, the economy remains vulnerable to external risks, key among them is the anticipated rise in crude price and input costs. Risks to inflation remain and are likely to arise from factors such as fiscal slippage, higher crude and input costs and MSP (minimum support price) hikes. Apart from inflationary risks, rising input costs can prevent a stronger production rebound. Risks to growth are further accentuated by the financial sector volatility and brewing trade wars. With this combination of upside risks, continued issues around the NPAs (non-performing assets) and hardening bond yields, RBI can be expected to continue to tread the path of caution," he warned.
EY's Srivastava also sees rising oil price as a "big dampener". However, he sees it as short-term volatility.
"Oil will definitely be a big dampener if the trend of rising global crude prices persists. Although, that would be short-term volatility but on a trend basis if this persists then it would be a dampener. Our expectation, however, is that it might remain range-bound between $65 per barrel and $75 per barrel, at least in the next two quarters," he said.
Srivastava does not see the 7.7% growth rate sustaining beyond the next few quarters.
"For one quarter it (7.7%) can be maintained but for whole fiscal (FY19), we expect the growth to be lower than 7.7%, particularly because of pressures from global crude prices and the external sector contributing negatively to growth," said the EY economist.
Icra's Nayar also expected economic growth to consolidate above 7% in the next fiscal "on the back of the continued benefits of the implementation of the GST, healthy consumption demand, government expenditure, and a back-ended pickup in investment activity".
"However, the ability of the public sector banks to support lending growth, the risk of monetary tightening and trade wars, and the impact of higher crude oil prices on purchasing power of consumers and corporate earnings have emerged as risks. On balance, GDP and GVA (gross value addition) growth are expected to improve to 7.1% and 7% respectively in FY2019, from 6.7% and 6.5% respectively in FY2018," she projected.
Sensing the economic risks from rising global crude prices and internal financial tightening, major investment bankers like Goldman Sachs and Moody's have revised downward their growth outlook for the next fiscal. Goldman Sachs has slashed it to 7.6% from 8% and Moody's to 7.3% from 7.5%.
Source: dnaindia.com