India’s economic growth for fiscal year 2016 came in at 7.6%, in line with the official estimate
New Delhi: India’s economy accelerated in the March quarter of 2015-16 to grow at 7.9%, buoyed by improved agricultural performance and growth in consumption.
The forecast of a good monsoon, due to make landfall on 7 June, together with the implementation of the Seventh Pay Commission’s recommendations on hikes for government employees (with sizeable arrears) will only further boost consumption demand in the economy.
The bad news is that private investment continues to be weak and it is falling upon a fiscally strapped government to make good the shortfall.
Private consumption growth remained robust at 7.4% in 2015-16, though it was marginally revised downward from 7.6% estimated earlier.
Core sector data released by the industry department shows that while electricity generation and cement production picked up significantly, steel output also recovered sharply although it remained marginally in the negative in the fourth quarter.
A Mint analysis of 309 of BSE 500 firms, for which comparable data was available for at least 24 quarters, showed that net profit rose 21.87% year on year in the March quarter compared with a 3.27% decline in the December quarter. The profit growth in the March quarter was the best since the quarter ended December 2014, signalling a turnaround in the private sector.
On Tuesday, data released by the Central Statistics Office (CSO) showed India’s economy grew at 7.6% in 2015-16 as estimated earlier, keeping the country the fastest growing major economy for the second consecutive year.
Indian economy also officially became a $2 trillion economy at Tuesday’s rupee exchange rate of 67.26 per dollar (although it has been nudging that number for some time).
Crisil Ltd chief economist D.K. Joshi said the numbers reconfirm that consumption is growing strong while investment remains weak.
“Going ahead, consumption is likely to be stronger with normal monsoon, better interest rate transmission, implementation of the 7th Pay Commission recommendations and the One Rank One Pension (scheme). More consumption could lead to higher capacity utilization, which could encourage private sector to revive investment plans,” he added.
Crisil has projected that the economy will grow at 7.9% in 2016-17. Joshi said agriculture will be the swing factor giving a one-time push to the economy if the monsoon remains normal as projected.
Pronab Sen, former chief statistician of India, said a normal monsoon will not necessarily lead to a revival in rural demand as farm prices could collapse, but added that it might help keep inflation down, giving more leeway to the Reserve Bank of India to ease interest rates.
The Reserve Bank of India (RBI) is scheduled to hold its monetary policy review on 7 June, where it is expected to hold interest rates at the current level.
While the Economic Survey has projected that the economy will grow within a wide band of 7-7.75% in 2016-17, finance minister Arun Jaitley has expressed hopes of the economy growing over 8% in the year after the India Meteorological Department said the monsoon would be normal.
However, the Survey has cautioned that with the global slowdown likely to persist, chances of India’s growth rate in 2016-17 increasing significantly beyond 2015-16 levels are not very high. “The wider range in the forecast this time reflects the range of possibilities for exogenous developments, from a rebound in agriculture to a full-fledged international crisis; it also reflects uncertainty arising from the divergence between growth in nominal and real aggregates of economic activity,” it said.
RBI in its monetary policy review in April said a number of factors could impinge upon the growth outlook for 2016-17, including slow investment recovery amid balance sheet adjustments of companies, weak revival of private investment demand and tepid external demand.
“On the positive side, the government’s “start-up” initiative, strong commitment to fiscal targets and the thrust on boosting infrastructure could brighten the investment climate. Household consumption demand is expected to benefit from the Pay Commission award, continued low commodity prices, past interest rate cuts, and measures announced in the Union Budget 2016-17 to transform the rural sector,” it added.
Growth of “agriculture, forestry and fishing” sector was marginally revised upwards to 1.2% in 2015-16 as against 1.1% in the advance estimates during the same period.
“The upward revision is on account of use of third advance estimates of crop production released by the Ministry of Agriculture,” the CSO said.
The growth of the manufacturing sector was revised downward to 9.3% as against the growth rate of 9.5% estimated earlier due to lower print of factory output than assumed.
“The IIP (Index of Industrial Production) of manufacturing registered a growth rate of 2% during the whole year of 2015-16, as against the growth rate of 3.9% used for compiling Advance Estimates. Due to this change, the advance estimate growth of ‘manufacturing’ sector has been revised downwards to 9.3%,” CSO added.
Growth of trade, hotels, transport, communication sector which constitutes the largest chunk of services sector has been revised downward to 9% against 9.5% estimated earlier, while financial, insurance and real estate sector grew at 10.3%, same as projected earlier.
However, the sharp deceleration of investment demand in the economy, from the estimated 5.3% to 3.9%, came as a reminder of the difficult road ahead.
Joshi said without support from public investment, this number could have been lower, as the private corporate sector remains reluctant to make further investments at this stage due to industrial overcapacity.