Indian economy expected to grow at 7.6% in FY 2016

Indian economy expected to grow at 7.6% in FY 2016

India’s economy slowed at 7.3 per cent (year-on-year) in the October-December quarter but the government revised the full year (2015-16) economic growth projections sharply upward at 7.6 per cent, putting itself on a stronger wicket just ahead of the Budget but triggering a fresh debate on the way the country calculates its GDP data.

Though the third quarter (Oct-Dec) numbers at 7.3 were a tad lower than the same period last year as per the findings of the Central Statistics Office (CSO), analysts questioned its veracity as the underlying trends of economic growth painted a bleak picture.

The manufacturing sector posted a whopping 12.6 per cent growth in Q3 despite factory production growth throwing up a bleak 3.4 per cent in the same period. Growth trends evening in the key infrastructure sectors were not encouraging in this period.

Exports, rail freight, investment, steel and cement production numbers also did not corroborate with the overall economic growth numbers. Manufacturing sector is expected to grow at 9.9 per cent for the full year.

Agriculture sector, however, contracted at -1.1 per cent in the third quarter which was obvious given the unusual monsoon patterns in the country which hit both kharif and rabi crops.

Only a few economists agreed with the government data. Analysts said, leave alone the full year forecast, even the third quarter numbers were surprising as all other underlining trends to growth showed loss in momentum.

New formula

The government, however, said that the policy and reform measures it has taken in the last one-and-a-half year have started to show results.

Analysts said the GDP data which is being calculated on the new formula had some anomaly. The new method takes into account the market price paid by consumers instead of the earlier one which was counted on the basis of  producers’ price.

In the new series, the data is now collected from around five lakh companies, as against 2.5 lakh earlier, hence a vast improvement in the growth numbers. Added to that, the government has also changed the base year for calculation of GDP from 2004-05 to 2011-12.

Along with the full year growth projections, the government also revised the first (Apr-June) and second (July-Sep) quarter growth upward to 7.6 and 7.7 per cent respectively.

A higher growth number makes it lot more easier for the government to estimate its fiscal deficit numbers in the Budget. Fiscal deficit or the difference between the government’s expenditure and its revenues is a key number which denotes the strength of an economy and watched closely by policy makers, rating agencies and investors.

But the flip side is that, a frequency growth numbers will not allow the government any fiscal slippage for the current year.

The new growth numbers, the pace of expansion in India’s economy, is at a five-year high and is much faster than that of China.

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