At 7.6% in FY16, India is now the fastest growing economy

With such a high growth number, India outpaces China - giving PM Modi more reasons to celebrate after completing two years in office last week

India’s gross domestic product (GDP) grew 7.6 per cent in 2015-16, up from 7.2 per cent a year ago. The full-year growth was fuelled by close to eight per cent growth rate in the fourth quarter of 2015-16, the fastest in the world for the January-March quarter and FY16 since the new GDP series was launched in 2011-12.

With such a high growth number, India has managed to retain its tag of the world’s fastest growing major economy — outpacing even China — giving Prime Minister Narendra Modi more reasons to celebrate after completing two years in office last week.

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Though the annual growth rate remained the same, quarterly economic expansion changed in 2015-16 between the actual data that was released on Tuesday and advance estimates.

The GDP grew 7.5 per cent in the first quarter of 2015-16, against 7.6 per cent projected in advance estimates; 7.6 per cent in the second quarter, against a projected 7.7 per cent; 7.2 per cent in the third quarter, against a projected 7.3 per cent; and 7.9 per cent in the fourth quarter, against a projected 7.7 per cent.

Though manufacturing and financial services posted strong growth, investment declined in the fourth quarter, showing signs of overstretched corporate balance sheets. That meant growth was largely consumption led despite rural distress.

Growth in the gross value added was 7.2 per cent in 2015-16 against advance estimates of 7.3 per cent.

Nominal GDP growth climbed to 10.4 per cent in the fourth quarter, from 9.1 per cent in the third quarter, pointing to inflationary pressure building up. While inflation was below two per cent in the third quarter, it rose to nearly 2.5 per cent in the fourth quarter. The GDP growth rate of 7.6 per cent in 2015-16 is the highest in the new series. “The numbers are encouraging. Everyone is looking forward to a good monsoon. We should hope for things to be better from hereon,” said Expenditure Secretary Ashok Lavasa. He has been appointed finance secretary.

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The government had pegged GDP growth at 7-7.75 per cent in 2016-17. What may give the government a bit of boost is that the index of eight crucial core sector industries rose 8.5 per cent in April, against 6.4 per cent in March. “The various measures that the government has been taking in the last couple of years are beginning to show results and overall there are green shoots. This year, hopefully with good monsoon, we should look at a growth closer to eight per cent,” said Economic Affairs Secretary Shaktikanta Das.

Agriculture rose 1.2 per cent in FY16, against advance estimates projection of 1.1 per cent. The push came from 2.3 per cent growth in the fourth quarter, against contraction of one per cent in the third quarter. Manufacturing grew by 9.3 per cent in 2015-16, lower than the 9.5 per cent projection, and the financial sector expanded by 10.3 per cent, in line with estimates. Growth rates for both segments fell sequentially in the fourth quarter. Manufacturing growth was 9.3 per cent in the fourth quarter, down from 11.5 per cent in the third quarter, and financial services grew 9.1 per cent in the fourth quarter, down from 10.5 per cent in the third quarter.

“Healthy corporate earnings in some sectors in the just-concluded quarter supported manufacturing growth in fourth quarter of FY16, despite a decline in volumes revealed by the Index of Industrial Production. As expected, manufacturing GVA growth has moderated in Q4FY16 from Q3FY16,” said Aditi Nayar, senior economist, Icra.  

The worrisome part of the economy was that gross fixed capital formation (GFCF), a proxy for investment, contracted 1.9 per cent in the fourth quarter of 2015-16. It had risen as high as 7.1 and 9.7 per cent in the first and second quarters, respectively. However, the third quarter also saw a small increase of 1.2 per cent. However, private final consumption expenditure rose 8.3 per cent in the fourth quarter, against 8.2 per cent in the third, 6.3 per cent in the second and 6.9 per cent in the first.

Gross final consumption expenditure growth declined somewhat to 2.9 per cent in the fourth quarter, against three per cent in the third quarter, reflecting tightening of the purse by the government. “The contraction of GFCF by 1.9 per cent in fourth quarter of FY16 is disappointing, highlighting the muted trend in private sector investments as well as some slowdown in the pace of growth of the government’s capex in the final quarter of the last financial year,” Nayar said.

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INDUSTRY LAUDS 7.6% GDP GROWTH

“With government giving strong impetus to the rural sector in Budget and expectations of a normal monsoon, both demand and investments are expected to further strengthen”

- FICCI

“These estimates put forward certain positive indications of growth revival. However, policymakers need to continue with the proactive stance to support these developments”

- ASSOCHAM

“Overall growth levels should move up in the coming quarters, though likely to remain sub-8%, on the back of a pick-up in consumption expenditure. Expect next financial year’s growth to be around the 7.6% mark”

- DELOITTE