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5 things India’s GDP growth data tells us
Major companies that sell goods and services in India look forward to a strong economic growth. The government releases the gross domestic product or GDP data regularly. For the year ended March 2016, India’s economy grew at 7.6%. It grew at 7.9% for the quarter to March 2016.
Here are 5 pointers that explain these numbers:
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Manufacturing and agriculture boost:
India’s growth in 2015-16 was led by manufacturing and agriculture sectors. These were laggards and are now showing a sign of recovery. The two employ the highest number of people in India. If these sectors do well, it is good news. This time last year, agriculture showed a negative growth. Nearly, 214 mn people were employed in agriculture and 114 mn in manufacturing in 2013, according to government data. Faster growth in these two sectors means manufacturers or farms can create more jobs.
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Services sector growth slows:
The growth in the services sector slowed to 8.9% in 2015-16 from well over 10%. While private sector services businesses did more or less similar business, the public sector services were weak at 6.6% from 10.7% in 2014-15. This was largely due to a cut in the government expenditure. This sector employs 102 mn people.
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Consumption:
While the above two points tell you about the revenue growth of sectors, the expenditure side of the GDP saw a decline. The private final consumption slowed to 55.5% of GDP in 2015-16 against 55.6% of GDP in the year-ago period. The government consumption fell to 9.9% of GDP from 10.4% last year. Consumption expenditure is an indicator of the money spent by individuals, private and public sector businesses and governments on goods and services.
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Gross fixed capital formation:
The GDP growth has to result in value addition to the economy. An economy needs investment from businesses and governments to stimulate growth. The growth in investment is measured by a factor called gross fixed capital formation. This is the rate at which new assets are created. This rate slowed to 31.2% of GDP in 2015-16 from 32.3% last year. For the economy to revive, this number has to surge.
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What it means for future growth:
Going forward, analysts expect private consumption to rise following positive forecasts for the monsoon and the implementation of the seventh pay commission recommendations that revise salaries for all government employees. A Kotak Securities report estimates gross value added or GVA growth of 7.7% in 2016-17. This was 7.2% for 2015-16. They expect a 0.6% boost to GDP from the salary revision for government employees in 2016-17.
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4.1%
The contribution of discrepancies to the overall GDP growth in 2015-16 is 4.1%. This is an unexplained part of the GDP data. It really has to do with the way the GDP data is calculated. The difference between the GDP growth and industrial growth data causes discrepancies. While GDP (GVA basis) for quarter to March 2016 stood at 7.9%, industrial production growth was flat at 0.1%. In most countries, the industrial production data tracks GDP growth data.
