GDP growth raise eyebrows as farm sector, capital formation remain slow

KOLKATA: India’s gross domestic product ( GDP) growth at 7.3% for December quarter of the 2015-16 has surprised some and raised doubts over meeting the projection of 7.6% for the fiscal given the modest capital formation and fall in farm output.

Central Statistics Office's advanced estimate of 7.3% was led by double digit expansion in the manufacturing. CSO estimated a 7.6% growth for the whole fiscal, compared with 7.2% in the previous one.

The third quarter number makes India the largest growing major economy while China grew 6.8% in the same period.

The third quarter data is in line with a Reuters poll of economists, but a tad high compared to a Bloomberg poll predicting 7.1% growth. But some eyebrows were raised on the upside because indicators such as purchasing index, capital formation and investment remained modest.

"There are surprises across data points with the most important element of surprises being the manufacturing number. The data looks difficult to connect with the reality. We are in the process of comprehending the data. I expect there could be downward revision of the data going forward like what happened last year," said YES Bank chief economist Shubhada Rao.

Manufacturing sector posted a 12.6% growth in the third quarter, the highest in the current fiscal. It is estimated to expand by 9.5% in the current fiscal, a substantial improvement from 5.5% in 2014-15.

CSO has also revised the previous quarter growth numbers -- from 7% to 7.6% for the first quarter and from 7.4% to 7.7%.for the second quarter, raising eyebrows.

The farm sector, weighed down by successive two drought years, shrunk 0.1% in the December quarter.

"Given the low farm sector output, low capital formation, fall in government expenditure as well as investment ratios, it would be a challenge to meet 7.6% growth," CARE Ratings chief economist Madan Sabnavis said.

The gross fixed capital formation, a proxy for investment saw share in GDP contract to 27.8%, as against 30.9% and 30.5% in the previous two quarters respectively.