Those who were contemplative about the future of India’s economy, due to the concerns of rising crude oil prices, rising global bond yields, increased global trade war, uncertain global politics, got a reason to cheer when the country’s GDP numbers came in at 7.7 per cent in the fourth quarter of 2017-18, higher than 6.1 per cent in the same period last year. Real GDP for FY 2017-18 is now at Rs 130 lakh crore, higher than the estimated Rs 121 lakh crore in January 2018. With these strong numbers, it’s given that India could retain its fastest global economy tag, outpacing China.
India grew fastest in the last quarter of FY18 as compared with the last seven quarters supported by strong performance in construction, manufacturing and public services after the powerful steps taken by the Narendra Modi government. The numbers were in line with the second estimates forecasted by the Economic Survey in February at around 6.75%. India’s Gross Domestic Product (GDP at 2011-12 prices) growth rate of 7.7% in the fourth quarter (January-March) of 2017-18 was higher than the GDP growth rate of 6.8% registered by China, though the size of economies are different. China is an 11-trillion-dollar economy, while India is only a 2.26-trillion-dollar economy.
Gross value addition (GVA), which is GDP combined with subsidies and less taxes, rose 6.5% in FY18, which is lower than FY17 at 7.1%. In the last quarter, GVA stood at 7.6%, the highest in last seven quarters.
While GDP is used as a gauge for most policy decision-makers for planning and policy formulation, GVA is a measure of total output and income produced in the economy. It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services. GVA and GDP can be both clubbed to paint the perfect picture of bustling economic from the supply front (producers) and the demand front (consumers), respectively. GVA, however, is a better indication of the productivity of the producers as it excludes indirect taxes which could distort the overall process of production. Nevertheless, GDP still remains a key measure to make cross-country analysis and comparing the incomes of different economies.
By looking at the above numbers we may assume that the steps taken by government policies are yielding results. The expanding GDP numbers over fiscal year 2018, with numbers at 5.6%, 6.3%, 7.00% and 7.70% depicts the structural shift in economy towards expansion phase. Meanwhile, FY 2017 has been a weak year, reeling under the impact of demonetisation and GST.
If one looks at the numbers closely, one would understand that these figures do not reflect standalone numbers. The strong performance in construction, manufacturing and public services although were being anticipated by few economists owing to the increase in the government’s spending in road construction and public expenditures, the jump in agriculture, mining and manufacturing sector came as a surprise.
Agriculture grew at 4.5%, manufacturing grew at 9.1% and construction grew at 11.5% during Q4 FY18.
Private final consumption expenditure has seen a growth of 6.6%, whereas government final consumption expenditure has seen a growth of 10.9% in FY18, indicating that the government is keen to revive the economic growth engine, but growth will be sustained through an increased private consumption.
The government’s keenness to revive GDP growth as indicated in slightly higher government spending and its focus on rural agriculture sector ahead of elections in 2019 could help in sustaining the GDP growth despite headwinds like higher oil prices and global trade conditions. A normal monsoon this year will further boost public expenditure which may eventually result in a better economic growth. The surge in gross fixed capital formation (a measure of private investment) which has shown more than 50% improvement as compared to the previous quarter, this improvement in gross fixed capital formation can be credited to increased private and government final consumption expenditure.
So how will these numbers impact investors? As we all know, it is the private consumption that remains the best line of defence for the Indian economy. In the January-March quarter too, private consumption expenditure continued to grow at 6.68% in constant pricing terms, compared with 5.8% in the quarter ended December 2017.
We continue to remain impressed by India’s consumption story, where higher disposable incomes on the backdrop of huge middle/upper middle class population base, the consumption theme is set to remain rock solid and prevent any meltdown in case of a global slowdown. With consumer sectors, investment cyclical continues to show robust increase in the top line, growth trends in FMCG, consumer discretionary stocks have seen improvement in consumer demand select retail private banks have also seen strong loan growth. A pickup in consumer demand and the improvement in investment cycle led by a prop-up in infrastructure and Capex activity has been undoubtedly a big positive.
Rising oil prices have always been a cause of worry for our economy, and the poor health of the public sector banks may lead to overall credit tightening in the system, hiccups like depreciating rupee, rising bond yields and interest rate tightening by the RBI shall be key concerns for near term.
Going forward, IMD forecasting normal monsoon and the government focus on housing and infrastructure may boost our economy further in the coming quarters and even the corporate recovery cycle which has started to pick up. With a proper strategy in place to deal with the looming threats of global trade wars and rising oil prices, we believe there is very little to doubt that we as a nation can achieve and sustain a double digit growth in the upcoming quarters. As an investor, you have to stay invested in quality companies in strong sectors to be a part of this growth story.
The author is the CEO of Karvy Stock Broking