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4 things about India's growth prospects explained
The Indian economy is back on the growth track after a slowdown. The forecast released by the Central Statistics Office (CSO) indicate that the future is good.
The CSO raised the growth forecast for the year to March 2018 to 6.4% from 6.1% earlier.
Here are 4 things explained in India’s growth story:
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Cyclical recovery on track:
Cyclical recovery is the improvement in business activity, job hiring, and factory production after a downturn. The Indian economy slowed down post the implementation of the Goods and Services Tax (GST). The recent upward revision in the GVA figures indicates a cyclical recovery in the economy, according to Kotak Securities. The manufacturing, construction, and agriculture sector remain the biggest contributors to their growth rate exceeding 4% in the third quarter (Q3) of FY 2017-18. Overall, the real GVA grew to 6.7% in Q3 of FY 2017-18 from 6.2% in the second quarter (Q2) of FY 2017-18. The GVA impact is also visible on the Gross Domestic Product (GDP). The real GDP grew to 7.2% in Q3 of FY 2017-18 from 6.2% in Q2 of FY 2017-18. While the nominal GDP that takes inflation into account grew to 11.9% from 10% during the same period.
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Gross fixed capital formation:
Government and private investment are important for growth. The gross fixed capital formation (GFCF) is a measure of investment activity in the economy. It takes into account the net increase in physical assets and excludes land purchases or the depreciation of fixed assets. The GFCF grew to 12% in Q3 of FY 2017-18 from 6.9% in Q2 of FY2017-18. This is the third consecutive quarter that registered positive GFCF growth.
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Consumption is up:
Goods and services demand from private players and the government agencies add to domestic consumption. Eventually, it leads to economic growth. The government consumption is up and robust at 6.1% in theQ3 of FY 2017-18. The central government spent nearly 97% of its target till January 2018. Further spending by state governments can boost consumption in the last quarter of the FY 2017-18. On the other hand, the private consumption remained weak in Q3 of FY 2017-18. Their consumption growth slowed to 5.6% due to declining wages in rural areas.
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Future growth prospects:
The market has been performing exceedingly well for a long time. Over the past year, both the market indices Sensex and Nifty broke new records. Many experts were of the opinion that a market correction was imminent. Share valuations were considered extremely pricey. The Sensex traded at a trailing P/E of 25.07 times. In comparison, the average P/E for the past five years was 19.81, according to media reports.
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32
Despite having strong GDP growth, India lags behind in an important metric known as the per capita GDP. It is calculated as the GDP divided by the total population. The per capita GDP in India is about Rs 1.2 lakh($1,852). While, the per capita GDP of the world's largest economy USA is Rs 38.67 lakh ($59,495). This makes the per capita GDP of USA at 32 times of India's per capita GDP
