India’s GDP has trounced expectations scoring a neat 7.9 per cent growth rate for the quarter ended March 2016. Asia’s third-largest economy also retained its world-beating 7.6 per cent growth for FY16 (with 2004-05 as base year), even as emerging markets like China, Russia and Brazil are slowing down.

The fastest-growing-economy tag could bolster Prime Minister Narendra Modi’s sales pitch during his upcoming US visit and put pressure on RBI to pencil in another rate cut when it reviews policy on June 7.

Data released by the Central Statistics Office on Tuesday showed that the economy grew at 8.7 per cent in FY16  (with 2011-12 as base year) to cross the $2.02 trillion mark, compared to $1.9 trillion a year ago. Improved farm output notwithstanding years of drought, better manufacturing, mining and electricity production cheered growth. Encouraged by lower interest rates, urban consumers bought more cars, two-wheelers and housing, snapping a negative trend.

Ideally, a growing economy should create jobs and spur investment cycle. But that doesn’t seem  to be happening. Banks are saddled with stressed assets, capacity utilisation is low and corporate investment bleak. Manufacturing, accounting for nearly 40 per cent of total employment, witnessed a de-growth. So did mining, construction and non-financial services.

“Growth largely comes from MSMEs. Corporates’ share in GDP is much lower and even if GDP grows at over 7 per cent, their employment isn’t significant. Large firms are increasingly outsourcing. It’s the MSMEs that drive growth, but are starved of capital. If this is addressed, we can grow at 10-11 per cent,” R Vaidyanathan, professor of finance, IIM-Bengaluru, told Express.

Fiscal deficit target offers hope

India’s fiscal deficit target stood at 3.9 per cent of GDP in FY16, thus giving the vote of confidence investors sorely needed. Government has indicated it would further reduce it to 3.5 per cent this fiscal.

Banking on good monsoon

Good monsoon and uptick in manufacturing and consumption could help India regain its 8 per cent growth rate this fiscal. “The measures the government has been taking are beginning to show results,” said Shaktikanta Das, economic affairs secretary.

Source: http://www.newindianexpress.com/business/news/2-Trillion-Dollar-mark-Indian-economy-at-its-biggest/2016/06/01/article3460757.ece

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