| India: Growth Picture Remains Murky, Second Half Could See Slow-Down The 4QFY10 GDP threw a few surprises - the highest ever (demand-side) GDP growth, sharp bounce-back of investment and double-dip of private consumption - to name a few. Growth and policy outlook. As compared to FY10, we expect private consumption and investment to grow much faster in FY11. Government consumption, net exports, rising indirect taxes and lower subsidies, however, would contain the overall GDP growth. Given weak private consumption, falling inflation and continued international uncertainties, we expect the RBI to raise the policy rates by 25 bps in July'10 policy and initiate no action before that. Double-dip of private consumption. Private consumption growth in 4QFY10 at 2.6% was the lowest since 1QFY03. Even during the peak of global crisis, private consumption growth was better than in 4QFY10. Government consumption growth at 2.1% in 4QFY10 despite the low-base of same quarter last year. Record GDP growth. India 's (supply-side) GDP grew by 8.6% in 4QFY10 and by 7.4% in FY10. On the demand side, India 's GDP growth during FY10 grew by 7.7%. The demand-side GDP growth in 4QFY10 at 11.2% was the highest ever quarterly growth. Drought-proof economy. Despite the worst drought in 30 years, India 's agriculture posted a positive growth of 0.2% in FY10. During 4QFY10 agriculture grew by 0.7%. Service led FY10 growth. For the full year, three-fourths of the contribution to growth came from the services sector. The role of industry, in particular manufacturing, was much more prominent in driving 4QFY10 GDP. Investment back with a vengeance. After seven quarters of relative oblivion, investment bounced back and grew by 17.3% in 4QFY10. Interestingly, this rate is comparable with the growth during the strong investment cycle during FY04-08. Overall assessment. The break-up of the GDP numbers released today throws confusing signals. Investment, manufacturing and select segments of services (trade, hotel, transport and communication) grew substantially ahead of expectations. At the same time, double-dip of private consumption and more than expected slowdown in govt. spending raise concerns. The positive contribution from net exports in 4QFY10 is unlikely to continue. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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