BS analyses high growth on low base

INDIA’S ECONOMY grew at a nine-quarter high of 8.2 per cent in Q1FY19, surpassing analyst expectations. As shown in Chart 1, GDP had grown by 7.7 per cent in Q4FY18.

Part of the surge in growth can be traced to a low base effect as economic activity was severely affected last year due to the goods and service tax (GST) and demonetisation. As shown in Chart 2, manufacturing had contracted by 1.8 per cent in Q1FY18 as companies had then de-stocked inventory ahead of the shift to the GST. On this low base, the sector has now grown by a staggering 13.5 per cent in Q1FY19. A similar trend is observed in the construction sector. The sector, which grew by a measly 1.8 per cent in Q1FY18, expanded by a healthy 8.7 per cent in Q1FY19 as seen in Chart 3. Agriculture growth also surprised on the upside. As shown in Chart 4, the sector grew at 5.3 per cent in Q1FY19, up from 4.5 per cent in Q4FY18. The uptick can be traced to higher crop production estimates.

Production rose to a staggering 284.83 million tonnes for agricultural year 2017-18 (July to June), according to the fourth advance estimates of crop production, up from the earlier estimate of 279.51 million tonnes. The services sector grew at 7.3 per cent in Q1FY19, marginally slower than the 7.7 per cent in Q4FY18 (Chart 5), in large part due to slower growth in public administration, defence and other services.

On the expenditure side, household demand remained healthy, with private consumption expenditure growing at 8.6 per cent in Q1FY19, up from 6.7 per cent in Q4FY18 (Chart 6). Investments grew at 10 per cent in Q1FY19, lower than the 14.4 per cent in Q4FY18, benefitting from a 27.4 per cent rise in the central government’s capital expenditure in the first quarter (Chart 7).