GDP growth: Will the recovery persist?

The Reserve Bank of India has shared the optimism of the government over the country's economic growth projections as it left its estimates unchanged at 7.4 per cent while announcing the monetary policy review today.

Following the release of the GDP growth estimates for the July-September period on November 30, the finance ministry also maintained that India's GDP will grow in the vicinity of 7.5 per cent during 2015/16.

The industry, as at least one of the apex chambers - Confederation of Indian Industry - has shown more optimism by predicting that the growth could actually exceed 7.5 per cent.

Are these positive signals pointing to a sustained economic recovery for the country amid mixed signals from the global economy?

Well, the quarterly estimates of GDP by the Central Statistics Office (CSO) might provide an early indication as the growth for Q2 2015/16 was being driven by a 9.3 per cent upward push in the manufacturing sector and a 6.8 per cent growth in fixed investments., the two areas of specific focus for the government since it took charge in May last year.

The private corporate sector growth (which has a share of around 65 per cent in the manufacturing sector) as estimated from available data of listed companies with BSE and NSE is 8.1 per cent at current prices during Q2 of 2015/16, and hence the growth of this sector at constant price is 9.3 per cent.

The quasi corporate and unorganised segment (which include individual proprietorship and partnerships and khadi & village industries; these have a share of around 26 per cent in the manufacturing sector) has been estimated using IIP of manufacturing. IIP manufacturing registered growth rates of 4.6 per cent during Q2 of 2015/16 as compared to 0.4 per cent in Q2 of 2014/15.

Adding to this was the sustained growth in the service sector, with trade and transport services leading the way.

The Central Statistics Office says that the quarterly gross value addition (GVA) at basic prices for Q2 2015/16 from sectors such as trade, hotels, transport and communication, and broadcasting services grew by 10.6 per cent as compared to 8.9 per cent in Q2 2014/15.

A key indicator used for estimating GVA from trade sector is the sales tax growth. Among the transport sector, passengers handled by the civil aviation grew 17 per cent during this period. The cargo handled by the civil aviation and cargo handled at major ports registered growth rates of 3.5 per cent and 3.9 per cent, respectively, during Q2 of 2015/16. Sales of commercial vehicles registered 10.7 per cent growth during Q2 of 2015/16 over Q2 of 2014/15.

Assuming that this growth sustains, the scope for the additional push should come from a revival of the real estate sector, which is yet to show major signs of recovery. Quarterly GVA at basic prices for Q2 2015/16 from 'construction' sector grew by 2.6 per cent as compared to growth of 8.7 per cent in Q2 2014/15. Key indicators of construction sector, namely, production of cement and consumption of finished steel registered growth rates of 1.6 per cent and 1.2 per cent respectively during Q2 of 2015/16.The growth in the unaccounted construction, which has a share of 12 per cent in total construction, is estimated at above 10.0 per cent.

The financial, insurance, real estate and professional services sectors showed 9.7 per cent growth, slower than 13.5 per cent growth in Q2 2014/15.

JLL India's Ramesh Nair says that at least in the Mumbai market, there are some positive signals. "Not only is the Indian economy picking up thanks to the growth in consumption (and vehicle, fuel sales), but the real estate market in Mumbai also has some news to cheer about," he says, adding that the aggregate of residential unit sales in the city in previous four quarters has jumped 28 per cent when compared to the corresponding period a year ago.

Commenting on the GDP estimates, industry chambers had all called for reforms in the construction sector.

Given the recent policy push - in terms of relaxation of a series of FDI norms to boost real estate sector - the government may be hoping to trigger the growth in this sector, and there lies its optimism for 7.5 per cent growth.