Economy – GDP FY11 growth at 10.3%: anand rathi

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Economy – GDP
FY11 growth at 10.3%
The 8.9% GDP growth in 2QFY11 suggests 8.7-10.3% growth for FY11. It
seems that India is revisiting its pre-crisis buoyant growth phase. Yet,
large-scale revision of past data, including lowering of the base, and
breakdown of various long-term macro relations raise questions about
authenticity of the data.


 Stellar growth. India’s GDP growth in 2QFY11, at 8.9%, was way ahead
of our expectation (7.3%). Growth in both industry and services has been
much stronger than our estimates.

 Growth by revision. GDP data for 1QFY11, 2QFY10 and 1QFY10 have
undergone sharp revisions, raising questions about the sanctity of the
country’s data generation process. For example, the demand-side GDP
growth for 2QFY10 has been revised downwards, from 6.3% to 4.9%.
The downward revision of the base played a major role in the 10.6%
demand-side GDP growth in 2QFY11.

 Consumption-led growth. The 9.3% growth in private consumption is
the key factor behind the strong overall growth performance in the
quarter. Growths in private consumption in GDP and non-durable
consumer goods production in IIP generally show high levels of
synchronicity (Fig 2). The relationship seems to have broken down in
2QFY11.

 Investment deceleration. Investment growth in 1QFY11 has been
revised drastically upwards, from 7.9% to 18.9%. Yet investment has
decelerated to 11.5% in 2QFY11.

 Overall assessment. The 2QFY11 GDP data suggest that the economy
has almost fully recovered from the global financial crisis-induced
slowdown. Agriculture has bounced back after the worst drought in three
decades; manufacturing, construction and most services activities are
largely back on their pre-crisis growth trajectories. On the demand front,
after seven bad quarters (1QFY09-3QFY10), investment in the last three
quarters is again seeing double-digit growth. Private consumption, too,
marks a smart recovery after a tepid performance during 4QFY09-
4QFY10. Yet, drastic revision of past data and breakdown of long-term
relations between GDP components and macro indicators raise concerns
on data quality. More importantly, if reality is being distorted by macro
data, it would lead to wrong policy and investment decisions.

 RBI to maintain pause. Despite the strong GDP numbers, the
continued liquidity shortage, slowdown in industrial production,
deceleration in inflation and aggressive tightening since Feb ’10 are likely
to keep the RBI in the pause mode during FY11