Govt. forecasts full-year growth at 7.6 per cent even as pace slows in Q3

Economic growth slowed in the third quarter to 7.3 per cent from a revised 7.7 per cent, the Central Statistics Office (CSO) reported on Monday. The Gross Domestic Product (GDP) is now estimated to accelerate to a five-year high of 7.6 per cent for the 12-month period ending March 31.

The higher growth in FY16 will be possible thanks to robust output in the services sector and a revival in industrial production, though concerns remain on the agriculture front. The 7.6 per cent growth projection for this fiscal will be the fastest pace since 8.9 per cent recorded in FY11. Economic output expanded 7.2 per cent in the preceding 12-month period as per the revised estimate released by the CSO. The 7.3 per cent growth in Q3 will also make India the fastest growing economy in the world, faster than China which witnessed a 6.8 per cent growth in the same period.

The data should come as a breather to Finance Minister Arun Jaitley as he prepares to present the Union Budget on February 29 under challenging economic circumstances in India and abroad. The minister is expected to give greater attention to the farm and manufacturing sectors in the Budget. Economic affairs Secretary Shaktikanta Das said “the direction of the numbers is very positive. The policy and reform measures undertaken by the government in the last one and a half years are beginning to show results.” The growth estimates come at a time when several experts have expressed concern about the methodology used to compute the GDP and asked the government to look into possible discrepancies as they feel it does not seem to accurately reflect ground realities. This includes weak (global and) domestic demand, exports shrinking for 13 straight months and troubled balance sheets of banks and corporates especially those operating in the infrastructure sector. They also cite the slower offtake of loans by corporates, poor investment activity, and lower industrial and core-sector output as factors that appear at odds.

The government, however, claims the new methodology of GDP calculation is an improvement over the previous one as it better collates the value addition that happens in the entire supply chain of goods and services. Experts have voiced concern over the lack of “backcasted” historical data to make the comparisons. The economists, including at the RBI, are understood to be following both the old and new methods of GDP calculation for a more real picture of the state of the economy.

The higher growth projected in FY16 is thanks to the upward revision of growth in Q1 (from 7.1 per cent to 7.6 per cent) and in Q2 (revised from 7.4 per cent to 7.7 per cent). As per the CSO data, in FY16, the manufacturing sector is projected to grow at 9.5 per cent from 5.5 per cent a year ago, while the farm sector is estimated to grow at 1.1 per cent compared with a contraction of 0.2 per cent in the previous year. The growth in the current fiscal in gross value added terms will be about 7.3 per cent. In the December quarter, farm sector output shrank by 1 per cent, but manufacturing recorded double-digit growth.

Also, the government, mindful of the fiscal deficit target, will find it challenging to continue to hike public spending (like it did recently) to compensate for poor private sector spending.

The gross fixed capital formation in the third quarter fell to 27.8 per cent of the GDP from 30.5 per cent in the previous quarter.

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Source:Thehindu