India's GDP growth slows; government spending to the rescue
India's first quarter (Q1) gross domestic product (GDP) slowed to 7.1% from 7.5% in the same period last year mainly due to lower activity in farm, mining and construction sectors, official data showed, even as industry said the numbers reflected a moderation of growth impulses. 
The decline was largely because of dwindling private investments – particularly real fixed investments. Fixed investments declined 3.1% on-year after having shed 1.9% the previous quarter (see image below). This is a result of excess capacity and high leverage in many sectors. The fall in investments was also in sync with the continuous decline in the capital goods industrial production. Consumption growth, however, did the anchoring, says ratings agency CRISIL in a report.
Given high level of discrepancies in GDP, Edelweiss Securities Ltd says it prefers to analyse economic activity on gross value added (GVA) basis. "Besides, GDP data is highly influenced by the government’s subsidy payments, which are volatile. Still, data suggests that private consumption and capex slowed, while exports and government spending supported growth," it added.
Standard Chartered Bank (StanChart) also says even though the GDP growth in Q1 has come at 7.1%, the slowest in five quarters, it focuses more on GVA, which it thinks is a better indicator of economic activity. In a note, StanChart says, "The Q1 GVA was in line with expectations at 7.3%. We forecast FY17 GDP at 7.7% year-on-year (yoy) and GVA at 7.4%, underpinning the theme of gradual recovery. FY16 GDP was 7.6% and GVA 7.3%."
"As GDP is arrived at by adding net indirect taxes to GVA, GDP in general is expected to be higher than GVA unless net indirect taxes are contracting. In India's case, while growth of net indirect taxes is likely to remain slow in FY17 as the impact of excise tax hikes during 2014 and 2015 normalises, it is not in contractionary territory. Thus, we think that lower GDP than GVA will correct in the remainder of FY17," the report from StanChart says.
Religare Capital Markets Ltd feels that the sharp slowdown in net indirect taxes pulled down GDP growth during the first quarter. "While indirect taxes continued to grow rapidly led by excise duty hikes on petrol and diesel in FY16, subsidy payments shot up by 53% YoY in Q1. Net indirect taxes (indirect taxes – subsidies) account for the difference between GDP and GVA," it said.
According to State Bank of India (SBI) Ecowrap, the first quarter GDP growth was more in consonance with reality. In a note, SBI says, "Private final consumption expenditure has also declined, but has been compensated by Government final consumption expenditure, which has shown double digit growth at 18.8%. The growth in Government final consumption expenditure can be attributed to One Rank One Pension (OROP) implementation. This has led to the highest growth of Total final consumption expenditure in six quarters."
SBI says, the business sentiments improved significantly in the country in response to several initiatives such as ‘Make in India’ and faster clearances of stalled projects, particularly, in respect of non-environmental permissions. "The number of stalled projects declined sharply from 759 in March 2015 to 374 in June 2016. Although in terms of amount, it has increased in the past three quarters. During FY16, the Project Monitoring Group cleared 168 large projects with the majority of these projects in the power, roads, coal and petroleum sectors," it added.
Looking forward, CRISIL says, it expects the growth to inch up in coming quarters. "On the whole, improved rural incomes on account of a favourable monsoon, lagged impact of interest rate reductions, Pay Commission payouts and easy monetary conditions should support demand in fiscal 2017. Consequently, investment cycle revival can be expected towards the end of fiscal 2017. We, therefore, expect real GDP growth to inch up to 7.9% in fiscal 2017 from 7.6% in fiscal 2016," the ratings agency says.
For FY2017, Edelweiss expects modest recovery. It says, "For FY17, we expect slow economic recovery to continue. This is mainly due to easing of financial conditions in the economy, normal monsoon and receding of exports drag. The government’s spending in infrastructure should also aid growth. However, increase in wholesale price index (WPI) could pose a statistical drag on GVA print going ahead."
According to StanChart, the forward guidance by BSE 500 non-finance companies signals hope for a turnaround during second half of FY2017. "While the demand recovery for consumption will take place in second half, investment as a whole remains weak, with a few sectors doing well. These companies are pinning hopes on a favourable monsoon and seventh Pay Commission payouts. At the same time, they are cautiously optimistic on the pace of recovery. Key sectors that are witnessing demand momentum are power transmission, renewables, defence, roads and railways," it added.
"India has witnessed a normal monsoon so far, which has boosted Kharif sowing (+4.7% YoY as on 26 August 2016) and bodes well for agricultural growth. Besides, reservoir levels have also improved and should support a healthy Rabi season harvest. Healthy growth in agriculture, implementation of the 7th CPC, benign inflation and an accommodative monetary policy stance is expected to boost consumption demand, leading to acceleration in growth. Thus, we maintain our
GVA growth estimate for FY17 at 7.7%," Religare concludes in its note.



Mahesh S Bhatt

1 month ago

Ground zero is bad stagflations+ taxes increasing Amen Mahesh


2 months ago

Inflation led growth? This is the deception that the Indian State has practiced since inception. India's policies, laws and constitution are antithetical to quality and productivity. However, India flaunts the hallucination that printing currency notes to stoke consumption in the least productive sections of society such as the incompetent and corrupt employees on State pay roll is Gross Domestic Product. :ies, damned lies and statistics.


Harsh Mehta

In Reply to SuchindranathAiyerS 2 months ago

Well said mr aiyer !!!

15 states ratified GST, a step away from presidential nod
The Goods and Services Tax (GST) bill ratified by 15 states, awaits the magical number of 16 before it is sent to the president for his assent.
After Goa became the 15th state to ratify the GST bill on Wednesday, decks would have already been cleared for presidential assent had the West Bengal government moved for its ratification earlier this week. 
It did not do so at a one-day special session on Monday, citing "time constraints".
Indications though suggest that the pan-India overhaul of India's indirect tax regime will get the mandatory support of more than half the states very soon.
It could well be much earlier than the Centre's targeted deadline of rolling out the GST bill by the start of the next fiscal on April 1, 2017.
Meanwhile, at a meeting here with the Empowered Committee of State Finance Ministers on GST on Monday, India Inc pitched for an 18 per cent standard rate.
They said this rate would generate adequate tax buoyancy without fuelling inflation.
The opposition Congress party had earlier demanded an 18 per cent cap on the GST rate.
Industry chambers also told state finance ministers that the new tax be implemented after a minimum of 6 months from the date of adoption of the GST law by the GST Council.
The Federation of Indian Chambers of Commerce and Industry (FICCI) suggested that to check inflation and the tendency to evade taxes "the merit rate should be lower and the standard rate should be reasonable."
"As per current indications and reports, goods will be categorised as being subject to merit rates (12 per cent), standard rates (18 per cent) and de-merit rates (40 per cent)," FICCI said in a release following a meeting here with the Empowered Committee.
"Certain goods will be exempted from GST while bullion and jewellery would be charged to one-two per cent," it said regarding classification of goods for applying GST rates.
On implementing GST, FICCI said that in order to provide adequate time to trade and industry to prepare "for a hassle-free roll out of the GST regime", a minimum of 6 months time should be permitted from the date of the adoption of the GST Law by the GST Council.
"Additional time would be required in case the GST Law as passed by parliament or state legislatures is significantly different from the one adopted by the GST Council," the statement added.
In a meeting here with Revenue Secretary Hasmukh Adhia last month, industry chambers had raised concerns on the draft GST law, flagging issues like dual administrative control and wide discretionary powers for tax authorities.
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.



Reliance Jio to offer free voice calls, data, roaming till year-end
Burying all speculation, Reliance Industries Chairman Mukesh Ambani said on Thursday the commercial operations of Reliance Jio will start from Dec 31. The company also offered several freebies to attract customers.
The chairman gave this information while addressing the 42nd annual general meeting of the company.
Amongst a whole host of offerings Ambani made:
*Starting from Sep 5 till Dec 31, Jio's bouquet of apps, all services will available for free
*By March 2017, Jio will cover 90 per cent of India's population
*New handsets (LYF) will start at Rs 2,999 
*Roaming charges will also be zero 
*Jio will offer data at Rs 50 per GB (base rate) against Rs 250 per GB charged on average by other operators.
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.



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