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31 Aug 2018


Impact: Positive (Overall Economic Sentiment)

Brief: The Q1 FY19 GDP print has been recorded at 8.2%, highest since Q2 FY16 (a three year high). The growth is primarily driven strong performance in manufacturing, electricity, agriculture and allied along with Government revenue expenditure. This augurs a positive economic sentiment and adds at least 20-30 bps to the overall annual growth this fiscal. A favorable base effect is a caveat emptor that must be considered though.

GVA in real terms has expanded by 8% in Q1, FY19 as against 5.6% during the same period, previous year. GDP adds 20 bps to this number and is pegged at 8.2% in the said quarter. While considering sectoral performance, agriculture sector has expanded by 5.3%, which is 230 bps higher than that of the previous year. Strong growth in agriculture sector is primarily attributed to bumper food grain production and bettering systemic efficiencies. Industrial segment, on the other hand, has recorded 10.3% growth in Q1, FY19 as against 0.1% in the base year. Manufacturing sector, which is 58% of the industrial segment, has expanded by 13.5% on a base of (-) 1.8% and is hence a major contributor of this growth.

A surprise came from the construction sector, which has expanded by 8.7% (compared to FY18 Q1’s expansion of 1.8%) despite RERA led implications. We reckon that the primary push comes from the Government’s focus on infrastructure; it has already been estimated that road construction activity grew from 27 km per day to over 40 km per day during the previous quarters. This drove the variables such as cement, steel and non-metallic minerals to register healthy double digit growth – with cement production expanding by 14.2% as compared to (-) 3.3% contraction, same time last year. Mining and quarrying sector, however disappointed, with a registered growth of just 0.1%, despite strong growth in coal production. We attribute this performance to logistic issues, which are acting as impediments for the sector. The unpredictable nature of the IIP, which is highly influenced by base effects – is another reason that can be cited for this poor performance.

Service sector, currently dominated by Public Administration segment, has been growing above 7% for past three quarters. During the reference period, the public administration segment recorded 10% growth, despite a strong base of 13.5%. The strong growth is attributed to the Tax Revenues expansion, especially after the implementation of the GST. Consequently, tax on products has expanded by 23.5% in Q1, FY19 as against 13.6% in the previous year. Government’s revenue expenditure expanded by 14.5% - an indication of the current scenario and the prevailing state fire power. This has also translated into lower than expected utilization of the current Fiscal Deficit target. It utilization stands at 86.5% YTD as compared to 92.4%, same time last year.

Overall, from the aggregate demand perspective, private consumption and public consumption remain as the critical components of this encouraging growth number. The share of private consumption (PFCE), has increased from 54.61% to 54.91% of GDP. Public consumption (GFCE), however added nearly 130 bps to its contribution - currently pegged at 11.77% of GDP. Investments, represented by Gross Fixed Capital Formation (GFCF) remained consistent with its contribution – staying at the near 32% of GDP mark. Notwithstanding these positive numbers, we would like to add a caveat regarding the favorable base effect. At 5.7%, Q1 FY18 recorded the lowest growth rate since Q2 FY16 and that is having a significant influence over this quarter number. As this base turns unfavorable in the coming quarters, the GDP growth numbers may experience a downward shift, moving forward.

At Constant Prices (Base 2011-12)

Trade, hotel, & transport8.
Financial services, real estate8.
Public admins13.56.17.713.310.0

Source: CSO

At Constant Prices (Base 2011-12)

Change in stocks0.70.750.710.740.7
Net exports-3.27-2.08-2.8-1.39-3.37

Source: CSO