Schroders raises doubts about India’s GDP growth
Schroders’ emerging markets economist, Craig Botham, has raised doubts about India’s growth after GDP figures have been released for Q4 2015.
The country said its economy has grown by 7.3% year-on-year in Q4 2015. It expects its GDP to reach a 7.6% growth for the fiscal year ending in March.
Botham suggested the quality of both growth and data have to be questioned.
“Digging down into the data shows the final quarter’s performance was driven by consumption and government spending, while investment weakened. Imports contracting even more rapidly than exports meant net exports contributed positively to growth.
“Given the overwhelming need for investment in India, this is a disappointing result despite the stronger-than-expected GDP number.
“That growth is increasingly reliant on current spending also suggests to us that this is not a particularly sustainable formula, especially in light of the announced fiscal consolidation path, and the fading boost from cheaper energy.
“An expansion in credit provision can help for a time but this does not create secure longer-term foundations in the absence of investment in productive capacity,” he said.
Botham added concerns include the accuracy of the data, “which are at odds with other indicators.”
“Industrial production, for example, likely grew around 5% year on year in the fourth quarter of 2015 while national accounts data indicate a 12.6% year on year increase in manufacturing gross value added in the same period.
“Based on a composite of higher frequency data we believe growth in GDP to be closer to 5-6% than the 7.3% reported.
“While a consumption-led story may have some legs left given the willingness of private sector banks to lend, India’s longer-term growth aspirations remain dependent on economic reform that prompts productive investment.
“We are still waiting, and our eyes now fall on the February budget,” Botham commented.