February 10

India's GDP projected to grow at 7.6% in FY16
India's growth is projected to pick up pace in the current fiscal and consolidate the country's position as the world's fastest-expanding major economy despite a slight moderation in the third quarter, helping the Modi regime deflect criticism that it's not doing enough to accelerate recovery. FY16 GDP is projected to grow 7.6% compared with 7.2% last year, according to data released by the statistics office on February 8. 

The faster growth is largely because of an upward revision in first-quarter growth that showed the economy lost steam in the third quarter to 7.3%. First-quarter growth was revised to 7.6% from 7% while that for the second quarter was restated to 7.7% compared with 7.4% estimated earlier. The government had earlier said such revisions would be possible because the initial quarterly estimates had not factored in buoyant indirect tax collections. "The direction of the numbers is very positive. The policy and reform measures the government has undertaken in the past one-and-a-half years are beginning to show results," said Economic Affairs Secretary Shaktikanta Das. 

China's economy grew 6.8% in the December quarter, putting India well ahead at 7.3%. 

"The surprisingly robust pickup in manufacturing growth in Q3FY16 relative to Q2FY16 belies the trends available from various high-frequency, volume-based indicators, including the IIP (index of industrial production) prints for October-November 2015," said Aditi Nayar, senior economist, ICRA Ltd. 

Industry called for more measures to consolidate the recovery. "Going ahead, we hope to see a continued momentum on the reform front. We look forward to the Union Budget giving a positive direction to the economy," Ficci said in a statement. Finance Minister Arun Jaitley will unveil the Budget on February 29. Growth was driven by robust manufacturing, which is expected to post a 9.5% growth in GVA in the current fiscal, up from 5.5% last year. Agriculture will be a drag again, reporting only a 1.1% rise even on a 0.2% contraction last year.

The services sector is expected to perform in line with last year. On the expenditure side, the key driver was private spending with a projected expansion of 7.6% compared with 6.2% last year. Investments, as measured by gross fixed capital formation, are set to grow 5.3%, only marginally higher than 4.9% last year, capturing the problem government has faced in reviving private investment. The share of investment in GDP is down to 29.7% in FY16 from 31% in FY15. 

"This is the fifth year of fall in the investment to GDP ratio. Reviving investment is a challenge because there is excess capacity in the system. This is a challenge that the government needs to address," said DK Joshi, chief economist at Crisil. Global headwinds will also make India's task of climbing to higher growth difficult. The International Monetary Fund estimates world growth at 3.4% in 2016, down from an October forecast of 3.6% while the World Bank cut its prediction to 2.9% from 3.3% it expected last June.