India’s latest GDP Numbers: Five things you must know

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Growth has slowed down: Asia’s third largest economy grew at 7.1% in quarter ended June 2016. This is the slowest in five quarters, and much lower compared to 7.9% recorded in the preceding three months.

Manufacturing picks up, but corporate investment still down: Manufacturing registered 9.1% growth in first quarter of current fiscal, as compared to 7.3% in same quarter last year. So this alone contributed one-fifth of India’s GDP growth.
However, corporate investment dipped by 3% (or by Rs 21,009 crore as measured in 2011-12 prices).
What does this say? Demand might have picked up resulting in higher manufacturing output. But not enough for the companies to see the invest in additional capacity.
When Indian economy was growing at 9% plus for five years in 2000-10, investment demand accounted for nearly half of the growth.

Government spending spurts: Nearly a fifth of GDP growth in latest quarter is due to government spending. This is clearly not sustainable as it would lead to widening fiscal deficit. Higher fiscal deficit will increase cost of borrowing for all others in the economy.

Exports finally showing growth: After many quarters of decline, exports reported a 3% increase. This is a positive as many export oriented industries are manpower-intensive sectors. This will create more jobs.

Mining, hotel, construction industries have slowed down

 

The positives: stable private consumption, growth in exports, pick up in manufacturing output.

The negatives: higher government spending not sustainable, key industries like mining and construction still sluggish, and corporate investment yet to pick up.

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