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Q1 GDP boost: Only data mumbo-jumbo or real turnaround

Indian economy expanded 5.7 percent in the first quarter of FY15, the highest in nine quarters, against a growth of 4.6 percent in Q4 of 2013-14. The economy grew 4.7 percent in the year-ago period. Sharing outlook on the Indian economy, Saumitra Chaudhuri, former member, Planning Commission says that confidence is high, but domestic demand is still sluggish. He expects FY15 growth to be over 5.5 percent.

The first quarter is generally a lean period for agriculture, despite that the sector registered a growth of 3.8 percent versus 4 percent Y-o-Y. However, he doesn’t expect Q1 agriculture growth to be repeated in Q2 and Q3 .

The revival in the first quarter was led by industry. The manufacturing sector grew at 3.5 percent, against a 1.2 percent contraction year-on-year. According to Chaudhuri, the sector got a beating for variety of reasons and can become an engine of growth if policies are implemented effectively.

Meanwhile, Laveesh Bhandari, Founder Director, Indicus Analytics says while one is seeing optimism about the country’s economic growth across board, but optimism in urban areas lower than that of rural areas.

When asked about the impact of strong growth on soaring inflation,  Bhandari feels even a small pick-up in growth will have impact on inflation, but Chaudhuri disagrees.

Below is the verbatim transcript of Laveesh Bhandari and Saumitra Chaudhuri’s interview with CNBC-TV18’s Latha Venkatesh, Sonia Shenoy and guest editor Abhay Laijawala, MD & Head of Research, Deutsche Equities India. For the complete discussion watch the accompanying videos.

Sonia: It was a 10-quarter high this time around when we got the Q1 FY15 GDP numbers at 5.7 percent and many indicated that this is a materially strong start to the year but it might not pan out in the next couple of quarters because the industrial numbers came off a very low base. What is the sense you are getting about how the rest of the year may pan out and how we might end FY15 as far as the GDP numbers are concerned?

Bhandari: These are the Q1 estimates and these are the first estimates and they are provisional. So, first I would expect these numbers to eventually be much lower than what has come out. They do tend to be adjusted a bit sometimes. Second is that definitely there is an improvement and no one can deny that and that improvement comes in from two sources. One is there is a certain cyclicality even during bad times and we are seeing some of that and other is of course an expectational part. However inherently if you look at the very DNA of the Indian economy in rural areas and small towns you are not really finding this kind of growth.

Abhay: I know that Indicus is amongst those very few consultants who actually put out GDP and you all drill down to the district level, that is the kind of data that you all work on. You mentioned that you are not seeing that recovery in small towns but what I want to understand from you is what is the feeling you are getting, while we may not have yet seen the recovery do you believe that the data points are suggesting that small town India and at the district level as well the optimism that big town India is seeing is it percolating down to that? It would also be interesting to know from you which are the regions in the country where you are seeing more optimism and regions where you are seeing relatively less optimism?

Bhandari: One has only a few data points but I would put it the other way round. I sometimes feel these days that the optimism in urban and large urban centres is actually much lower than the optimism that one finds in smaller areas including in rural areas. Optimism as we all know has many short term ups and downs but where optimism is concerned there is almost a complete uniform distribution across India. Generally “acche din aane wale hain” has actually percolated down to the masses.


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