At 7.7%, Q4 GDP growth is fastest in 7 quarters

Beating all expectations, the Indian economy registered a growth rate of 7.7 per cent for the January-March quarter, the fastest it has grown since April-June 2016-17.

Though the growth rate for the previous three quarters were revised downwards, the economy still managed to push its full-fiscal growth number for FY2017-18 to 6.7 per cent, a notch above the government’s own estimate of 6.6 per cent, but lower than the 7.1 per cent of 2016-17.

“(This) shows that the economy is on the right track & set for even higher growth in the future. This is the #SahiVikas under leadership of PM @NarendraModi ji & @ArunJaitley ji,” tweeted Finance Minister Piyush Goyal after the growth numbers were made public. Construction, manufacturing and agriculture were the main contributors to growth in the fourth quarter.

The government also said it would not lower the estimate for the current fiscal. “I don’t think we are revising our forecast for the current year 2018-19 which was indicated at 7.5 per cent,” Economic Affairs Secretary Subhash Chandra Garg told reporters here on Thursday. “We retain it at this moment at this level. There has been some downward revision by Moody’s and others, taking oil prices into consideration, but there is no one-to-one relation between oil price and GDP growth.”

His response came after global rating agency Moody’s on Wednesday cut India’s 2018 growth forecast to 7.3 per cent from the previous estimate of 7.5 per cent, citing higher oil prices and tighter financial conditions.

Response to reforms: Adhia

Echoing the sentiment, Finance Secretary Hasmukh Adhia said the increasing trend of quarterly GDP numbers indicates that the structural reform undertaken by the government has begun paying rich dividends. “What is most noticeable is the increase in the Growth Rate of GVA of the manufacturing sector in the last two quarters of 2017-18 at 8.5 per cent and 9.1 per cent at constant price. We would like to believe that GST has given a big boost to the industrial sector,” Adhia tweeted.

Commenting on the latest GDP number, Dharmakirti Joshi, Chief Economist, CRISIL said there has been a sharp upturn in economic activity in the quarter ended March 2018, which has improved real GDP growth for FY18. “It is heartening to see investments expand at 14.4 per cent. This is likely to be on account of government investments as the private corporate sector is still de-leveraging and faces capacity overhang,” he said, adding that even as the GDP growth for FY18 picked up to 6.7 per cent, private consumption growth continues to trail GDP growth.

CII Director-General Chandrajit Banerjee said the GDP data show that the rally in investment demand is continuing apace as gross fixed capital formation rose 9.2 per cent in the fourth quarter against only 4.8 per cent in the previous quarter.

“It seems that industrial capex is gradually beginning to bounce back and we can expect fresh investments as well as capacity creation in FY19 as the demand cycle improves further based on tailwinds created by factors such as prognosis of a good monsoon, increased government spending and favourable global growth,” he said.

Fiscal fitness

On the fiscal front, the government also managed to stick to its revised budget estimate (RBE) of 3.5 per cent of GDP.

According to data from the Controller General of Accounts, the fiscal deficit stood at ₹5.91-lakh crore, or 99.5 per cent of the RBE. The Budget, in February, had revised the fiscal deficit target for 2017-18 to 3.5 per cent from the earlier estimate of 3.2 per cent.

Commenting on the fiscal deficit number, Devendra Kumar Pant Chief Economist and Senior Director (Public Finance) at India Ratings said that FY18 fiscal deficit came in same as revised estimate. While revenue collections were lower than the revised estimates, expenditure cut, both revenue and capital helped government to achieve FY18s revised fiscal and revenue deficit target. “Going forward in FY19, while the growth buoyancy is expected to provide support to revenue receipt, factoring in response to Air India’s disinvestment process, achieving INR800 billion disinvestment target in FY19 looks difficult,” he said.