India's growth recovery runs into emerging-market chaos

Geneva Stokes
June 5, 2018

The Indian economy posted a growth rate of 7.7 per cent during the January to March quarter, enabling the country to retain its position as the fastest growing major economy, data released by the Central Statistics Office showed on Thursday. "In addition, investment rate has seen some improvement on the quarterly basis and is expected to maintain the momentum going ahead", said, economist at CARE, while forecasting 7.5% growth this fiscal.

The rate is higher against 5.6 percent, 6.3 percent and 7.0 percent respectively, in the first three quarters, Q1, Q2 and Q3 of 2017-18.

The minister further said that an vast growth in the field of manufacturing, agricultural and the construction has also been recorded, while highlighting that the manufacturing and construction areas also provide employment.

However, the downward revisions for the earlier quarters of FY2018 have prevented the full year growth estimates from exceeding our forecasts. Capacity utilisation remains at 75 per cent, an indication that investment activity has picked up but not across sectors. "We should however be wary of the headwinds the economy faces in the coming quarters from higher crude prices feeding into inflation and rising inflation expectations". GVA growth for Q4 FY18 also picked up to 7.6%YoY, helped by manufacturing and construction sectors growth.

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As compared to India's outstanding performance, China Grew at 6.8% in the January to March Quarter.

The Indian government earlier this month sought assurances from Saudi Arabia, OPEC's biggest producer, that oil prices would remain "stable and moderate".

Experts believe that GDP growth in 2018-19 could get a boost from prospects of good monsoon which will further boost the agriculutural produce and farm output. India meets 80 per cent of its oil needs from imports. Demand seemed to have picked up on the back of a concerted increase in government spending, from 10.3 per cent of GDP in 2016-17 to 10.8 per cent past year at constant prices, perhaps largely on account of pay panel obligations.

"But as I had been saying in the past as well, there is no one to one relation between the oil price growth and the GDP growth". In terms of annual growth, GVA was at 6.5 percent. There have been various quarters and years when the oil prices have gone up but there has been growth also. Higher oil prices have already pressured the rupee, near a record low last week and Asia's worst performer. The International Monetary Fund expects economic growth could reach 7.4 percent in 2018/19.

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