India’s Q1 GDP likely to grow as net tax figure sees an upswing

India’s first quarter gross domestic product, due to be released on Tuesday, is expected to strengthen, following solid support from higher net taxes. Despite a challenging global backdrop, the country is seen to perform relatively well, after it stabilized at the start of the calendar year.

The growth figures, due tomorrow is likely to witness gross-value added (GVA) growth at 7.1 percent y/y, steady from a quarter ago. A seasonal hand from higher net taxes will lift real GDP to 7.5 percent on year compared to 7.3 percent in 4Q15, DBS reported.

While, private capital investments are expected to stay calm, urban consumption is likely to move up. However, public spending is likely to have moderated towards the end of the fiscal year to meet targets and mandatory expenditure ceilings. Net exports are likely to stay flat-to-negative in this quarter.

"The services sector is expected to pick most of the slack for the quarter, lifted by public capex spending," DBS stated in a recent report.

On the supply side, services sector is expected to compensate for the sub-par industry growth and weak farm output. Agricultural output is likely to decline 0.5 percent on year in 1Q16 from -1.0 percent in 4Q15, due to sub-par rains and warmer than usual heat.

Meanwhile, industrial sector is likely to gain impetus from electricity generation but mining and manufacturing may limit the upside. Diverging from high-frequency prints, GDP manufacturing output jumped 12.6 percent y/y in 4Q15, pointing to some potential revisions, the report added.