Although it may not be visible on ground as yet, recently disclosed numbers show that growth in India's Gross Domestic Product (GDP) has been world's fastest in the quarter ended on March 31, 2015. As per official figures, India's GDP grew at 7.5% in the fourth quarter of the Financial Year (FY) 2014-15. While full year growth was a tad lower at 7.3%, still in line with expectations.

Positive aspects of Q4 GDP numbers
 

• Trade, hotels, transport and communication services grew at 14.1%.
• Financial, real estate and professional services grew at 10.2%
• Manufacturing activates revived recording a growth rate of 8.4%
   

And the concerns are...
 

• Agricultural output dipped by 1.4%
• Mining and quarrying sectors grew at a slower pace of 2.3%
• Public administration, defence and other Services recorded only 0.1% growth
• Electricity, gas, water supply and other utility services registered below par growth of 4.2%
   

Is India's Economic Growth Back on Track?

Data as on May 29, 2015
(Source: MOSPI, PersonalFN Research)  

As far as full-year progress of various sectors of the economy in FY 2014-15 is concerned, agriculture and export oriented sectors remained lacklustre. Other important sectors such as construction, mining and public services also recorded subdued growth numbers. Although manufacturing activities saw a sustained revival throughout 2014-15, the Index of Industrial Production (IIP) doesn't mirror the same performance. Private Final Consumption Expenditure (PFCE) and Gross Fixed Capital Formation (GFCF) grew at muted pace while Government Final Consumption Expenditure (GFCE) witnessed a fall on Year-on-Year basis in FY 2014-15. This suggests that though economy is recovering, full-fledged recovery is still very far. It is noteworthy that the Government managed to curb subsidy payment in FY 2014-15 thereby managing to contain fiscal deficit.

Are GDP numbers dependable?

GDP growth paints a rosy picture but it finds little support from other macro-economic indicators. Non-food credit growth of banks has been merely 8.9% in April with growth in industrial credit coming in further low at 6.4%. In the personal loans segment, housing and vehicle loans showed slower growth for the period between April 2014 and April 2015 as compared to that witnessed between April 2013 and April 2014. As per RBI data, Infrastructure, mining, iron and steel, textiles, and aviation collectively form more than half of Non-Performing Assets (NPAs). All aforementioned sectors play an important role in overall economic development and fragile state of finances of companies belonging to these sectors remains an area of concern.

As per data published by the Ministry of Commerce and Industry, pace of growth in core sectors declined for the second consecutive financial year in 2014-15. As against 6.5% growth witnessed in 2012-13 and 4.2% in 2013-14, growth of core sectors aggregated at 3.5% in FY 2014-15. Such distortion may put a question mark over the strong recovery in manufacturing suggested by GDP data. Furthermore, the downward revision (from 7.5% to 6.6%) in Q3, 2014-15 GDP data and Poor corporate earnings in the second half of FY 2014-15 also suggest that the economy is not completely out of woods as yet.

Is accuracy of GDP data questionable?
Ever since the new series of GDP data has been launched, the credibility of it has frequently been questioned by many experts and economists. In Defence, TCA Anant, chief statistician of India, has already clarified that, the new series is more comprehensive and structurally different from those used in the past and thus comparison of new series with the older one is not warranted for now. PersonalFN believes, we need to relook at growth and inflation dynamics in wake of change in the methodology of calculating GDP.

Impact on Markets...
Equity and debt markets have been cautiously optimistic about the future course of economic growth. Therefore, leaving out knee-jerk reaction of markets about GDP numbers, investors remained unimpressed. Both the markets would depend more on other broader economic indicators such as inflation, IIP, credit growth, movement of interest rates and corporate performance among others to decide on direction, going forward.

What to expect?

Speaking about GDP growth in future, performance of agriculture sector, manufacturing industries and export related sectors would play a crucial role.

It is unlikely that the recent GDP data would affect monetary policy decisions of RBI. The central bank, in its June 2 bi-monthly monetary policy review meeting, is more likely to consider inflation and expectation of future inflation as more important parameters than the recent GDP numbers. PersonalFN is of the view that, RBI is likely to maintain status quo considering the possibility of below average monsoon which may lead to loss of agricultural output. Furthermore, crude oil has rallied sharply from its 5 ½-year low. Higher crude oil prices in the international markets may cause higher inflation in India, a negative for higher economic growth.

PersonalFN is of the view that, you shouldn't speculate about the movement of any macroeconomic indicator nor should you try judging the outcome of any event. You might incur losses in your investment portfolio which may deteriorate your wealth in the long run. PersonalFN believes you should rather rely on personalised asset allocation that aims to take care of your financial goals.

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