The government on Monday estimated India’s economic growth this financial year at 7.4%, against 6.9% in 2013-14, as the country changed its definition of gross domestic product (GDP), as well as the base year for calculating it.
The estimated growth for 2014-15 is the same as China’s growth for 2014. Earlier, both the International Monetary Fund and the World Bank had said India’s growth would exceed China’s by 2016-17.
According to data released earlier, GDP growth stood at 5.7% in the first quarter of 2014-15 and 5.3% in the second. However, according to the new data, the first quarter recorded 6.5% growth, the second 8.2% and the third 7.5% (agriculture output contracted during the third quarter). Had the government not increased its spending, growth in the third quarter would have been lower, but that would pressure fiscal deficit. Besides, gross fixed capital formation, a proxy for investment, and private final consumption expenditure, which reflects demand in the economy, witnessed a slow down in growth as interest rates remained high.
Following the change, the second quarter of 2014-15 recorded higher growth compared to the first, contrary to results thrown up by the previous methodology.
Going by a like-for-like comparison, the projected growth for 2014-15 stands at a four-year high; growth in 2010-11 was 10.3%. The data will boost the confidence of the National Democratic Alliance government, despite the fact that much of the higher numbers were due to a statistical change --- the definition of GDP was changed to include indirect taxes (net of subsidies), called GDP at market prices. Also, the base year was changed from 2004-05 to 2011-12.
"Based on this performance it does look that the Budget will target growth of 7.5-8% in its calculations for FY16 as the policy measures adopted and stable economic conditions will facilitate such growth next year," CARE Ratings chief economist Madan Sabnavis said.
He cautioned that while these numbers reinforce the view of the earlier series of improvement, the numbers get magnified significantly. "Therefore, overall perception on economy should not be changing," he said.
Against advance estimates, results of the three quarters are primarily based on actual data, even as the Index of Industrial Production (IIP) data for December are yet to be released. Advance estimates are based on actual data for two quarters, part actual and part projection for the third quarter and a projection for the fourth.
These estimates help calculations for the annual Budget, scheduled to be presented on February 28.
According to the new estimates, the size of India’s economy during 2014-15 is slightly reduced to Rs 1.26 lakh crore from Rs 1.29 lakh crore projected in the Budget. As such, it will be more difficult for the government to meet its fiscal deficit target. Even if it restricts its fiscal deficit to the budgeted Rs 5.31 lakh crore, this would be 4.2% of GDP, against 4.1% estimated in the Budget. The very fact that the government expenditure on public administration and others is projected to rise higher at 9% in 2014-15 against 7.9% in 2013-14 would also widen the deficit.
"Nominal GDP for 2014-15 has been pegged lower than assumed in the Budget, which would make the task of restricting the fiscal deficit at 4.1% of GDP more stringent," ICRA senior economist Aditi Nayar said
Even as annual economic growth rate is projected to pick up in 2014-15, agriculture growth is slated to fall to 1.1% from 2.7% in 2013-14.
This financial year, industry is estimated to grow 5.93%, against 4.5% the previous financial year. While the manufacturing segment is forecast to expand 6.8% (5.3% in 2013-14), electricity and related sectors are estimated to expand 9.6%, against 4.8% in 2013-14. Growth in mining and quarrying, however, is expected to fall to 2.3% 5.4% in FY14, while growth in the construction sector is estimated at 4.5%, against 2.5% during the previous year.
In 2014-15, the services sector is estimated to grow a stellar 10.62%, against 9.05% in the previous year. Within services, financial, real estate and professional services are set to expand 13.7%, compared with 7.9% in 2013-14.
Trade, hotels and other segments are estimated to expand 8.4%, against 11.1% in 2013-14.
The country's per capita income is projected to increase to Rs 88,533 in 2014-15 against 80,388 in 2013-14 and Rs 71,593 in the previous year. Average income of an Indian rose 10.1% in 2014-15 against 12.3% in 2013-14 and 11.3% in 2012-13.
In the third quarter, agriculture production contracted 0.4% against two% in the second quarter and 3.5% in the first quarter. In fact, it is largely 20% rise in government expenditure on public administration, defence and other services which pushed up GDP growth to some respectable level in Q3. It was starkly higher than 6.9% in the second quarter and 1.9% in the first quarter.
Another area of concern remained gross fixed capital formation (GFCF) and private final consumption expenditure (PFCE), which have been showing deceleration in growth.
GFCF rose just 1.64% in Q3 from 2.79% in Q2 and 7.65% in Q1 of the current financial year. PFCE grew 3.53% in the third quarter against 8.69% in the second and 4.34% in the first three months.
Chambers-- Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry-- sought to draw the government's attention to this area and pressed for measures in the Budget to revive investments and demand in the economy.
The estimated growth for 2014-15 is the same as China’s growth for 2014. Earlier, both the International Monetary Fund and the World Bank had said India’s growth would exceed China’s by 2016-17.
According to data released earlier, GDP growth stood at 5.7% in the first quarter of 2014-15 and 5.3% in the second. However, according to the new data, the first quarter recorded 6.5% growth, the second 8.2% and the third 7.5% (agriculture output contracted during the third quarter). Had the government not increased its spending, growth in the third quarter would have been lower, but that would pressure fiscal deficit. Besides, gross fixed capital formation, a proxy for investment, and private final consumption expenditure, which reflects demand in the economy, witnessed a slow down in growth as interest rates remained high.
Following the change, the second quarter of 2014-15 recorded higher growth compared to the first, contrary to results thrown up by the previous methodology.
Going by a like-for-like comparison, the projected growth for 2014-15 stands at a four-year high; growth in 2010-11 was 10.3%. The data will boost the confidence of the National Democratic Alliance government, despite the fact that much of the higher numbers were due to a statistical change --- the definition of GDP was changed to include indirect taxes (net of subsidies), called GDP at market prices. Also, the base year was changed from 2004-05 to 2011-12.
"Based on this performance it does look that the Budget will target growth of 7.5-8% in its calculations for FY16 as the policy measures adopted and stable economic conditions will facilitate such growth next year," CARE Ratings chief economist Madan Sabnavis said.
He cautioned that while these numbers reinforce the view of the earlier series of improvement, the numbers get magnified significantly. "Therefore, overall perception on economy should not be changing," he said.
| GDP growth as % year-on-year | ||||||||||
| 2005-06 (base 2004-05) | 2006-07 (base 2004-05) | 2007-08 (base 2004-05) | 2008-09 (base 2004-05) | 2009-10 (base 2004-05) | 2010-11 (base 2004-05) | 2011-12 (base 2004-05) | 2012-13 (base 2011-12) | 2013-14 (base 2011-12) | 2014-15 (base 2011-12) | |
| 9.3 | 9.3 | 9.8 | 3.7 | 8.5 | 10.3 | 6.6 | 5.1 | 6.9 | 7.4 | |
| Note: Growth is given on the basis of new definition of GDP; 2014-15 growth is based on advance estimates | ||||||||||
Against advance estimates, results of the three quarters are primarily based on actual data, even as the Index of Industrial Production (IIP) data for December are yet to be released. Advance estimates are based on actual data for two quarters, part actual and part projection for the third quarter and a projection for the fourth.
These estimates help calculations for the annual Budget, scheduled to be presented on February 28.
According to the new estimates, the size of India’s economy during 2014-15 is slightly reduced to Rs 1.26 lakh crore from Rs 1.29 lakh crore projected in the Budget. As such, it will be more difficult for the government to meet its fiscal deficit target. Even if it restricts its fiscal deficit to the budgeted Rs 5.31 lakh crore, this would be 4.2% of GDP, against 4.1% estimated in the Budget. The very fact that the government expenditure on public administration and others is projected to rise higher at 9% in 2014-15 against 7.9% in 2013-14 would also widen the deficit.
"Nominal GDP for 2014-15 has been pegged lower than assumed in the Budget, which would make the task of restricting the fiscal deficit at 4.1% of GDP more stringent," ICRA senior economist Aditi Nayar said
Even as annual economic growth rate is projected to pick up in 2014-15, agriculture growth is slated to fall to 1.1% from 2.7% in 2013-14.
| Size of India's economy (in Rs crore) | ||||
| Base Year | 2011-12 | 2012-13 | 2013-14 | 2014-15 |
| 2004-05 | 90,09,722 | 101,13,281 | 113,55,073 | 128,76,653* |
| 2011-12 | 88,32,012 | 99,88,540 | 113,45,056 | 126,53,762 |
| *Budget Estimates | ||||
This financial year, industry is estimated to grow 5.93%, against 4.5% the previous financial year. While the manufacturing segment is forecast to expand 6.8% (5.3% in 2013-14), electricity and related sectors are estimated to expand 9.6%, against 4.8% in 2013-14. Growth in mining and quarrying, however, is expected to fall to 2.3% 5.4% in FY14, while growth in the construction sector is estimated at 4.5%, against 2.5% during the previous year.
In 2014-15, the services sector is estimated to grow a stellar 10.62%, against 9.05% in the previous year. Within services, financial, real estate and professional services are set to expand 13.7%, compared with 7.9% in 2013-14.
Trade, hotels and other segments are estimated to expand 8.4%, against 11.1% in 2013-14.
The country's per capita income is projected to increase to Rs 88,533 in 2014-15 against 80,388 in 2013-14 and Rs 71,593 in the previous year. Average income of an Indian rose 10.1% in 2014-15 against 12.3% in 2013-14 and 11.3% in 2012-13.
In the third quarter, agriculture production contracted 0.4% against two% in the second quarter and 3.5% in the first quarter. In fact, it is largely 20% rise in government expenditure on public administration, defence and other services which pushed up GDP growth to some respectable level in Q3. It was starkly higher than 6.9% in the second quarter and 1.9% in the first quarter.
Another area of concern remained gross fixed capital formation (GFCF) and private final consumption expenditure (PFCE), which have been showing deceleration in growth.
GFCF rose just 1.64% in Q3 from 2.79% in Q2 and 7.65% in Q1 of the current financial year. PFCE grew 3.53% in the third quarter against 8.69% in the second and 4.34% in the first three months.
Chambers-- Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and Industry-- sought to draw the government's attention to this area and pressed for measures in the Budget to revive investments and demand in the economy.
| Centre's fiscal deficit as percentage of GDP | ||||
| Base year | 2011-12 | 2012-13 | 2013-14 | 2014-15 |
| 2004-05 | 5.6 | 4.8 | 4.5 | 4.1* |
| 2011-12 | 5.8 | 4.9 | 4.5 | 4.2 |
| *Budget Estimates | ||||
| Source: Ministry of statistics and programme implementation | ||||
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