India’s gross domestic product is estimated to have grown at 7 per cent in the first quarter of the fiscal, indicating that a full recovery in the economy is still some quarters away.
“GDP at constant (2011-12) prices in first quarter of 2015-16 is estimated at Rs 27.13 lakh crore, as against Rs 25.35 lakh crore in first quarter of 2014-15, showing a growth rate of 7 per cent,” said the Central Statistics Office (CSO) on Monday.
Quarterly gross value added (GVA) at basic price at constant prices too grew at a sluggish 7.1 per cent in the first quarter of the fiscal as compared with 7.4 per cent growth a year ago.
While the growth is much higher than the 6.7 per cent clocked in the first quarter of 2014-15, it is considerably muted as compared to the 7.5 per cent growth in the preceding January to March quarter of last financial year.
The Union Budget 2015-16 had pegged GDP growth at 8 per cent and 8.5 per cent in 2015-16, expecting a pick up in investments on the back of its various reform measures as against 7.3 per cent last fiscal.
Earlier in the day, the finance ministry had pitched for a rating upgrade by Standard and Poor’s citing strong macroeconomic indicators, low inflation and improvement in fiscal and current account deficits. But analysts warned that the data highlights points to continuing challenges in the economy even though the sluggish Chinese growth may have put India in the global spotlight.
The CSO data revealed that manufacturing grew at 7.2 per cent in the first quarter, while the highest growth of 12.8 per cent was recorded in trade, hotels and transport and communication. Financial services grew by a healthy 8.9 per cent and construction by 6.9 per cent.
However, poor rains and a high base effect dragged down growth in agriculture to a mere 1.9 per cent while the mining and quarrying sector too expanded at just 4 per cent during the period. Moreover, public administration, defence and other services grew by a dismal 2.7 per cent.
“The dismal electricity sector performance pulled down first quarter industrial growth to 6.5 per cent from 7.7 per cent. GDP growth this year will be led by consumption growth (backed by falling inflation and monetary easing), investment growth revival will take place once capacity utilisation starts increasing. Weak global demand also attributed to lower growth in first quarter,” said DK Pant, chief economist, India Ratings.
The sluggish growth data is also expected to lead to renewed demands for a rate cut by the Reserve Bank of India in its next bimonthly monetary policy review. RBI, which has cut interest rate by 0.75 per cent in three tranches since January, is scheduled to announce the next bi-monthly policy on September 29.
“The data is certainly far more sobering than the market consensus and the disappointment has come largely from investments and government spending. In our opinion, it paves the way for another 2 rate cuts and underscores our call for further, more prompt monetary easing,” said Jyotinder Kaur, principal economist, HDFC Bank, adding that the Bank is likely to lower its GDP forecast of 7.6 per cent to 7.8 per cent for the fiscal.
Concerned over stalling reforms and poor monsoons, Moody’s had also recently cut India’s growth forecast to 7 per cent from its earlier projection of 7.5 per cent.