Consumption drives India’s Q2 GDP growth, economy likely to expand 8 pct in FY2017

Consumption continues to be the main driver of the Indian economic growth, even as a rebound in the investment cycle remains subtle because of the flow of investment credit being constrained from banks burdened by bad debts, noted ANZ in a research report. The real GDP growth of the country came in lower than the Real Gross Value Added growth in the June quarter, indicating that the indirect tax collection net of subsidies dropped considerably in the June quarter, as compared to last year. The real GVA growth came in at 7.3 percent year-on-year, while the real GDP grew 7.1 percent.

Net indirect taxes are expected to get evened out during the rest of 2016. India is likely to record a healthy economic growth of 8 percent year-on-year in FY 2017, owing to the rebound in rural demand and increased consumer spending, added ANZ.

Delving into details, the services sector continued to grow, with real estate and financial and professional services accelerating to a 9.4 percent year-on-year growth. Public expenditure also recorded a robust expansion of 12.3 percent year-on-year primarily on the revenue account. The industry sector’s performance continued to be weak, weighed on by the construction and mining sectors. However, the manufacturing sector’s buoyancy is not in sync with the data from the corresponding industrial production figures, noted ANZ.

Consumption spending continues to be the main growth engine, contributing 5.4 percentage points to the headline 7.1 percent growth. Even if, private consumption slowed down, it would bolster in the rest of 2016 as a solid rebound in agriculture growth would lead to an improvement in rural demand, according to ANZ. Consumer spending is also expected to see an uptick in the September quarter.

“Looking ahead, sustained growth in consumption will facilitate a further improvement in capacity utilization, which will lead to a recovery in investment starting as of Q4 FY 2017. This is in our view will result in a virtuous growth cycle aided by the benefits from reforms especially GST and FDI liberalisation”, added ANZ.