India Sees Growth Exceeding Estimate as Modi Prepares Budgetby
FY16 GDP seen rising 7.6% from 7.2% year ago; 7.4% estimate
Focus now shifts to the government's budget due Feb. 29
India sees its growth exceeding economists’ estimates to overtake a slowing China, a pace Prime Minister Narendra Modi’s government will be under pressure to sustain when it presents its budget on Feb. 29.
Gross domestic product will expand 7.6 percent in the year through March, compared with 7.2 percent a year earlier, the Statistics Ministry said in a statement on Monday in New Delhi. The median of 21 estimates in a Bloomberg News survey was for a growth of 7.4 percent. China grew 6.9 percent in 2015, while Russia contracted 3.7 percent and Brazil is forecast to shrink 3.7 percent. India’s expansion slowed to 7.3 percent in October-December from 7.4 percent the previous quarter.
Modi’s caught between the urge to boost spending in an economy that’s showing mixed signs of strength, and the need to curb expenditure to meet budget deficit targets and win more rate cuts from the central bank. Indian stocks, bonds and currency saw their worst January since 2011, partly weighed down by concerns about fiscal slippage.
"The onus is on the government to sustain this pace," said Prasanna Ananthasubramanian, chief economist at ICICI Securities Primary Dealership in Mumbai. "The drivers of growth from the data suggests that government spending and consumption spending are really strong."
However history shows that higher fiscal spending in India is accompanied by stronger growth but also higher inflation. That would jeopardize Rajan’s 5 percent target for March 2017, probably compelling him to keep rates unchanged this year after four cuts in 2015.
While economists in a separate Bloomberg survey see Modi meeting his 3.9 percent of GDP budget deficit target for the current fiscal year, it estimates 3.6 percent in the next year instead of the 3.5 percent previously projected.
Meanwhile a deadlock in parliament has kept Modi’s administration from pushing through key economic bills including a goods-and-services tax, known as GST. The levy will replace more than a dozen taxes and boost revenue and growth through compliance, lawmakers have said.
Gross value added -- a measure of economic strength closely watched by the central bank -- rose 7.1 percent October-December, matching the median estimate, after a 7.4 percent expansion the previous quarter. The farm sector contracted 1 percent, while mining rose 6.5 percent, manufacturing 12.6 percent and electricity and gas output increased 6 percent.
"GST will be a sentiment turner and crucial for growth in the medium term," said Shubhada Rao, an economist with Yes Bank Ltd. in Mumbai.
(A previous version of this story corrected the pace of GVA growth)