The Indian economy expanded the fastest in nine quarters and grew 8.2 per cent in the first (April-June) quarter of financial year ending March 2019, on the back of robust consumer spending and a strong growth in manufacturing and construction sectors, according to data released Friday by the Central Statistics Office.
The high growth rate is aided by a low base effect — 5.6 per cent in April-June 2017.
The first quarter economic growth in India is significantly higher than 6.7 per cent posted by China during the same period but then China’s economy is about four times India’s.
In terms of Gross Value Added (GVA), the economy grew at 8 per cent in April-June this year compared with 5.6 per cent in April-June 2017. GVA represents the total output and income in the economy. As per the new methodology followed by CSO, the GDP is calculated by adding product taxes to the GVA at basic prices, and removing subsidies.
Manufacturing growth picked up significantly at 13.5 per cent during the period on the back of higher government expenditure giving households more money to spend. The manufacturing sector had witnessed a contraction of 1.8 per cent in Q1 last financial year. Private final consumption expenditure jumped 8.6 per cent in Q1 FY19 compared with 6.9 per cent in Q1 FY18.
For the full year, the government expects the economy to grow about 7.5 per cent. The RBI has forecast a GDP growth rate of 7.4 per cent for 2018-19. External headwinds including high oil prices that bring along the risks of imported inflation, and increased trade protectionism may impact exports.
“India’s GDP for the first quarter this year growing at 8.2% in otherwise an environment of global turmoil represents the potential of New India. Reforms and fiscal prudence are serving us well. India is witnessing an expansion of the neo middle class,” Finance Minister Arun Jaitley said in a tweet.
The construction sector growth jumped 8.7 per cent in Q1 FY19, from 1.8 per cent in Q1 FY18. Agricultural, forestry and fishing sector recorded growth of 5.3 per cent, up from 3.0 per cent, mainly due to more than a 15 per cent increase in production of rice, coarse cereals and pulses during rabi reason.
While manufacturing, construction and farm growth picked up pace, services sector growth largely fell during the quarter. Mining sector growth went down significantly to 0.1 per cent in Q1 FY 19, in contrast to 1.7 per cent in Q1 FY 18.
Analysts said since the first quarter growth was aided by low base year growth in first quarter, full growth is estimated at around 7.5 per cent.
Department of Economic Affairs Secretary Subhash Chandra Garg said that the V-shaped recovery of growth in Indian economy is complete now. “The Indian economy should grow at robust and steady state in full year, remaining the fastest economy in the world. Robust GDP performance in Q1 raises hope of exceeding estimates of 7.5 per cent for current fiscal,” he said.
Former Finance Minister P. Chidambaram said he is happy that the growth rate has quickened but it is based on the lowest base year growth of 5.6 per cent in the last eight quarters. “Going forward, the base effect will not be so favourable. And when we reach Q3 and Q4, the rate of growth may decline and the annual growth rate may be more or less like last year’s,” he said in a tweet.
Bibek Debroy, Chairman of the Economic Advisory Council to Prime Minister (EAC-PM), said that the growth numbers indicate “superior acceleration in India’s growth trajectory” and validate that the economic fundamentals remain robust.
“The encouraging growth rates in agriculture, manufacturing and construction show that the growth momentum continues to be broad-based. In addition, one also expects favourable monsoons to further boost agricultural output and rural consumption in the coming quarters,” Debroy said.
Crisil expects the economy to grow at 7.5 per cent in 2018-19. Sustaining GDP growth at over 8% over the next few years would require significant traction in private investments and relentless implementation of reforms to raise productivity, Joshi said.
Said CARE Ratings Chief Economist Madan Sabnavis: “The positive feature was a broad-based pattern of growth with the exception of mining. This is a surprise given the strong performance of the coal sector as revealed in the Core sector data. The services segments trade, transport etc. and finance, real estate etc. have registered lower growth rates compared with last year, where the base effect has worked in the reverse direction,” he said.
Given the challenges of higher interest rates, weak rupee and oil price concerns, Care Ratings expects some moderation in growth in the next few quarters and has pegged the full year growth at 7.5 per cent, Sabnavis said.