Indian Economic Growth Slows in Q4 2016-17
By Georgi Ninov - Research Analyst
India’s GDP recorded its weakest growth since Q4 2015-16* – 6.1% in Q4 2016-17. The country which was the fastest growing major economy in 2016 decelerated for a fifth quarter in a row with the difference between the current period and Q4 2015-16 reaching more than 3 percentage points. Gross Value Added growth decreased in a similar fashion – from 8.7% to 5.6% for the January-March quarter.
A closer look at the GDP elements shows that investments declined significantly with gross fixed capital formation decreasing by 2.1%. Consumption expenditure marked a slight increase (10.2% in Q4 2016-17 or around 0.8 percentage points increase comparted to previous year) but this was mostly due to a strong performance of the government expenditure. Private consumption, which brings significantly more weight has decelerated - 7.3% growth against 10% in Q4 2015-16. The positive development in exports (10.3%) was offset by a similar increase in imports (11.9%).
In terms of GVA, services and industry both underperformed – 7.2% and 3.1% growth respectively, compared to 10% and 7.4% in Q4 2015-16. The strongest effect is on construction sector which shrank by 3.7%. On the other hand, agriculture had a strong quarter, growing with 5.2% - almost 4 percentage points more than Q4 2015-16, aided by favorable climate. Public administration and defence expenditure increased considerably (17%) due to government investment in these sectors.
Although GDP forecasts and interpretations are generally difficult for a country with a big informal sector as in the case of India, some issues of the Indian economy must come to attention. Attracting investment is still difficult for India with FDI staying below 3% of GDP. Investment is hampered by the public banks’ unwillingness to lend as well as the Reserve Bank of India keeping high interest rates as part of an inflation targeting policy. The demonetization of November 2016 slowed down consumption affecting new orders and sectors such as construction.
*Please note that India uses the fiscal year as a measure of quarters – e.g. Q1 2016-17 is the period April-June 2016,
Q4 – January-March 2017 etc