GDP growth in the third quarter of financial year 2017-18 was came in at 7.2%, the fastest it has been in the entire financial year so far, according to official data released on Wednesday. The government also marginally increased its estimate for the full year’s growth to 6.6% from its earlier estimate of 6.5%.
Growth in GDP was at 6.5% in the second quarter of this financial year. Growth in the gross value added (GVA) in the third quarter stood at 6.7%, up from the 6.2% seen in the second quarter and the 5.6% in the first quarter of this financial year. In the third quarter, the manufacturing sector exhibited a strong recovery, growing at 8.1%, following up on a 6.9% growth in the second quarter. The agriculture sector also saw relatively robust growth in the third quarter, growing at 4.1%, up from 2.7% in the first and second quarters of this financial year.
“The GDP trends are consistent with the robust growth of the manufacturing Purchasing Manager’s Index (PMI), Index of Industrial Production (IIP) and consumer demand,” Bibek Debroy, Chairman of the PM’s Economic Advisory Council said in a statement.
“The fast recovery in the economic indicators like IIP, PMI and consumer demand reflects a positive economic sentiment and that India is on the right path to become one of the fastest major economies in the world surpassing China,” Mr. Debroy said.
Gross fixed capital formation (GFCF), a measure of overall investment activity in the economy, grew at a robust 12% in the third quarter, up from the 6.92% growth seen in the previous quarter. “The manufacturing and construction sectors have picked up and led the growth on the output side in the third quarter, while on the demand side it was led by gross fixed capital formation,” D.K. Srivastava, Chief Policy Adviser at EY India said.
Private sector demand
“Although in the first two quarters capital formation was driven by the government, now it is private sector demand that is picking up.” Growth in private final consumption expenditure (PFCE), a proxy for consumption spending, continued to slow in the third quarter, growing at 5.58%, down from 6.56% in the second quarter and 6.62% in the first quarter of this financial year.
“The only sign of concern is that PFCE is growing slower, steadily declining over the last three quarters, and so its share in overall GDP has been going down,” Mr. Srivastava added. “But as long as investment demand remains high, the economy should be able to deliver long-term sustainable growth.”
“The Second Advanced Estimates released by the Central Statistical Organisation (CSO) today indicate a broad-based and significant acceleration of real economic activity as projected in the Economic Survey,” the Ministry of Finance said in a statement.
Upward revision
The Second Advance Estimates of National Income for the financial year 2017-18, released along with the third quarter GDP data, showed that the government is expecting higher growth from both the agriculture and manufacturing sectors compared to what it predicted in its First Advance Estimates issued in early January.
The agriculture, forestry and fishing sector is expected to grow by 3% over the entire financial year, compared with the previous estimate of 2.1%. This is, however, far slower than the 6.3% growth seen in 2016-17.
The manufacturing sector is expected to grow by 5.1% over the entire 2017-18 financial year, higher than the 4.6% estimated in January, but significantly slower than the 7.9% growth in 2016-17.
“The manufacturing sector will likely grow at the same pace in the fourth quarter as it did in the third quarter if the projections for the full year are to work out,” Madan Sabnavis, Chief Economist of CARE Ratings said. “Overall, fourth quarter growth will also be in the 7.1-7.2% growth if the economy is to grow at 6.6% over the entire year.”
