Spike in consumption fosters India to grow at 7.9 pct in Q4; growth trajectory likely to continue

The Indian economy grew at 7.9 percent in the fourth quarter of fiscal year 2015-16, growth being largely driven by consumption. It is further evident that the economy is witnessing a strong recovery, on grounds of improved consumer as well as investor momentum.

Headline economic growth has accelerated in the three months to March to 7.9 percent. This remains one of the highest rates of quarterly growth in recent years. Only the growth performance in the second quarter of fiscal 2015 was better, reports confirmed.

However, on grounds of investment, the Indian diaspora remains really weak on stressed corporate balance sheets low utilization of existing capacity and fragile business confidence. Gross fixed capital formation is showing a slower pace this fiscal than that during the same period last year. Though domestic consumption is driving the indicators of the economy, overseas demand remains weak, given the global turmoil that most economies are facing.

Hence, a lot depends on domestic consumer spending and government expenditure to keep the economy on track. However, the arrival of monsoon will play a key factor governing consumer demand-led growth, especially in rural areas.

Meanwhile, the outlook remains positive for the next quarter amid growing investor confidence.

"Momentum is building up faster than anticipated, and there is demand pick-up in the horizon. This definitely spells out a positive story that there will soon be a recovery in private sector capex," said Shubhada Rao, Chief Economist, Yes Bank.