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1 September 2016
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| GDP (The Total Investment & Insurance Solutions) |
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. The Total Investment
& Insurance Solutions
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GDP Growth (The Total Investment & Insurance
Solutions)
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. The Total Investment & Insurance
Solutions
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GVA Growth (The Total Investment & Insurance
Solutions)
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. The Total Investment
& Insurance Solutions
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."
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Subsidies
Payout (The Total
Investment & Insurance Solutions)
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.
The Total Investment & Insurance Solutions
"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.The Total Investment
& Insurance Solutions
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