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  • How to make sense of India’s Q1 GDP Data

    India’s Gross Domestic Product (GDP) grew to a nine-quarter high of 8.2% Q1 of 2018-19. It grew to ₹33.74 lakh crore from ₹31.18 lakh in the year ago period (Q1 of 2017-18). The government releases a lot of data along with the GDP figures.

    Here are the positive and negative takeaways from India’s Q1 GDP growth data.

    Click here to read about 5 things GDP growth data tells us

The Positives

  • The strong growth data shows that economic reforms like, the introduction of the goods and services tax or GST have started giving rich dividends. This is reflected in the higher indirect tax revenue of the government. Click here to read about the effect of demonetization on previous year’s GDP data

  • Sectors that have done well are agriculture (5.3% growth), manufacturing (13.5% growth), electricity and gas (7.3% growth) and, construction (8.7% growth). The strong performance by agriculture and manufacturing sector is a positive development for a stronger export growth.

  • 13.5% growth in manufacturing was showed increased industrial production. This is good news for job creation. Click here to read about how recent IIP figures are signalling towards gradual recovery.

  • Gross Fixed Capital Formation (GFCF), which is the net accretion of assets in the economy, is expected to be strong on the back of this data. GFCF is considered as a barometer of investment activity grew at 10%.

The Negatives

  • You may have noticed the dramatic fall in the value of the rupee. A lot of that is due to a sharp surge in the trade deficit at ₹18.02 billion in June 2018 Quarter, highest since November 2014. The trade deficit in the previous year quarter was also high. Further weakening of rupee may lead to inflation. This could further push RBI to keep borrowing rates high.

  • The gross value added or GVA data for ‘agriculture, forestry and fishing’ indicated rural distress. According to the RBI annual report for 2017-18, imports along with an all-time high production of food grains and vegetables created excess supply. A record buffer stock level in rice and wheat led to a prolonged fall in prices of pulses and oilseeds. This hurt farmer income badly.

  • Gross value added is the measure of the value of goods and services produced. If you take into account the GVA growth over the past two years, there is barely any change at 6.75%. This shows that despite a higher headline growth in GDP, the actual growth in the value of goods and services is flat.

Read here about RBI’s state finance report

What our Research team says:

The acceleration in GDP has mainly come from two items: 1) Pick up in agriculture from 3% in Q1FY18 to 5.3% in Q1FY19 & 2) Industry growth from 0.1% in Q1FY18 to 10.3% in Q1FY19. To a large extent the base effect on account for de-stocking in Jun’18 and stoppage of construction work just before GST implementation has played out. Within Industry it is the sharp pull back in manufacturing & construction that has driven the growth (mainly due to base effect). Manufacturing has moved up to 13.5% in Q1FY19 from (-) 1.8% in Q1FY18. Construction has moved to 8.7% in Q1FY19 from 1.8% in Q1FY18. We are expecting GDP growth to moderate in the coming three quarters (i.e. Q2FY19: 7.3%; Q3FY19: 6.9% & Q4FY19: 7/0%). Hence, overall we as a house are expecting FY19E GDP growth to be ~7.3% (up from 6.7% in FY18)

    • Doubts still linger over new GDP series Read more

    • India's Q1 GDP grows at 8.2% on upswing in manufacturing and construction activity; beats estimates Read more

  • 8%

    The GDP data induces a reaction in the bond markets. Any signs of a rise in inflation and slowdown in growth would mean higher bond yields. On September 4 2018, the 10-year bond yield moved above 8% for the first time in almost 4 years. This is an indicator of a scenario where interest rates remain high.

    Read here about tracking bond yield movements

     

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