Modi, in a white waistcoat, greets supporters from a vehicle during a roadshow in Varanasi, India. - AP File
NEW DELHI: India will likely report economic growth of close to 8% in the fiscal year that ended in March, providing a boost to Prime Minister Narendra Modi’s government as elections come to a close.
Official data due to be published Friday (May 31) will probably show Asia’s third-largest economy grew 7% in the first three months of the year, taking growth for the financial year through March to 7.9%, according to a Bloomberg survey of economists.
The quarterly growth figure will probably be lower than the preceding quarter’s blowout 8.4% expansion, although that data was fueled by one-off factors. Last quarter’s growth rate is still expected to be higher than the government’s prediction of 5.9%.
India’s rapid growth makes it the fastest-expanding major economy in the world, standing in stark contrast with global growth that’s likely to reach about 3% this year. Modi and his officials have pinned the economy’s performance on the ruling Bharatiya Janata Party’s policies, pledging to continue investing in infrastructure and other growth-supporting programs if it returns to office for a third term.
"The Indian economy has exhibited remarkable resilience despite higher-rates-for-longer, Russia-Ukraine war and Covid prior to that,” Kaushik Das, chief economist for India at Deutsche Bank AG, wrote in a note. However, the strong growth rate could also be "attributed materially” to how it has been calculated, he said.
India’s six-week elections comes to end on June 1, with results expected on June 4. The BJP is widely expected to return to office, although there is uncertainty about whether it will be able to expand its majority as Modi has been predicting.
Financial markets are bracing for a possible selloff if the BJP loses support, concerned about a possible shift away from economic reforms.
Teresa John, an economist at Nirmal Bang Institutional Equities, said no matter which party forms the government in June, India’s growth will stay robust. There may not be "any significant change in the broad direction of policy irrespective of political party,” she said.
Stronger growth means the Reserve Bank of India will have reason to keep interest rates unchanged for longer, given inflation is still above its 4% target and the US Federal Reserve has delayed its policy easing.
Economists including from Goldman Sachs Group Inc. have pushed back their rate-cut forecasts for India to later this year as the US keeps rates higher for longer.
Here’s what to watch for in the GDP release, due to be released at 5.30pm. local time on Friday:
Growth Divergence
Growth in the October-December quarter was fueled by an unexpected drop in government subsidies, which gave an artificial boost to the net indirect tax category used to calculate gross domestic product. An alternative measure of growth using gross value added was 6.5% in the quarter.
Economists said the January-March quarter may continue to reflect a wide divergence between GDP and GVA. Latest data from the central government and various states suggest subsidies are currently at about 30% lower than the previous year, Madhavi Arora, an economist at Emkay Global Financial Services Ltd. estimated.
This could "artificially push the fourth quarter GDP print,” to near 6.9%-7%, above expectations, she said. GVA growth may still be shy of 6%, she added.
Services and Consumption
Last quarter’s growth was likely driven by investments, construction and manufacturing but there are "some pockets of weakness in corporate earnings which can dampen the overall growth numbers,” Suvodeep Rakshit, chief economist of Kotak Institutional Equities, said in a phone interview.
Growth in the services sector, which makes for about half of GDP, likely held up last quarter, while government spending also continued to expand, Nirmal Bang’s John said.
Strong urban demand and wage growth likely supported consumer spending, which makes up more than 60% of the economy, economists said. Rural demand remained weak, albeit showing some nascent signs of recovery. - Bloomberg
