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At 8.6%, the advance GDP estimate (from the supply side) for full year FY11 (fiscal year
ending March 2011) was a tad stronger than in FY10. A similar improvement was delivered
from the expenditure side with growth improving to 9.7% from 9.1% previously. Overall, the
number contained no surprise and continued to attest to India’s strong domestic demand led
growth story. It also reinforced our view that monetary policy will need to be tightened
further.
The modest improvement in overall GDP reflected a recovery in agriculture output from the
supply side and from the expenditure side, acceleration in both consumption and investment
helped. Agriculture production increased 5.4% from 0.4% in the previous year. Services
activity eased slightly whereas manufacturing output remained static at 8.8%. Private
consumption and investment expanded 8.2% and 8.4% compared with 7.3% (for each) in
FY10.
These are strong numbers in our view particularly considering that in contrast to the rest of
the region, they mark the second year of recovery. This is unsurprising and consistent with
India’s historical domestic demand led pattern of growth.
Where our concerns lie are as follows:
The remarkable acceleration in agriculture production has largely failed to dent the
stubbornly high food inflation. YTD, we note that food inflation has averaged 16.6% yoy
from April 2010 to January 2011. This highlights the significant bottlenecks in the supply
chain i.e. movements of food produce from the producer to the consumer. Additionally,
the structural increase in demand for food has more than offset the augmentation in
supply.
The problem of inflation goes beyond food. The GDP deflator for the year increased
10.5% compared to 8.2% in FY10. The most aggressive rise in the deflator was in private
consumption but nonetheless, spanned across all components.
We also note that GDP (ex-government consumption) is exceptionally strong. We
estimate it at 10.6% compared with 8.2% in the previous year. Against this backdrop, it is
now important that the government consolidates its fiscal position in a more resolute
manner. A tighter fiscal policy would be a very effective inflation antidote.
From a monetary policy perspective, the data only reinforces our view that the RBI is not in a
conclusive stage of tightening as yet. We continue to forecast another 100bps of rate hikes
over the next 12 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
At 8.6%, the advance GDP estimate (from the supply side) for full year FY11 (fiscal year
ending March 2011) was a tad stronger than in FY10. A similar improvement was delivered
from the expenditure side with growth improving to 9.7% from 9.1% previously. Overall, the
number contained no surprise and continued to attest to India’s strong domestic demand led
growth story. It also reinforced our view that monetary policy will need to be tightened
further.
The modest improvement in overall GDP reflected a recovery in agriculture output from the
supply side and from the expenditure side, acceleration in both consumption and investment
helped. Agriculture production increased 5.4% from 0.4% in the previous year. Services
activity eased slightly whereas manufacturing output remained static at 8.8%. Private
consumption and investment expanded 8.2% and 8.4% compared with 7.3% (for each) in
FY10.
These are strong numbers in our view particularly considering that in contrast to the rest of
the region, they mark the second year of recovery. This is unsurprising and consistent with
India’s historical domestic demand led pattern of growth.
Where our concerns lie are as follows:
The remarkable acceleration in agriculture production has largely failed to dent the
stubbornly high food inflation. YTD, we note that food inflation has averaged 16.6% yoy
from April 2010 to January 2011. This highlights the significant bottlenecks in the supply
chain i.e. movements of food produce from the producer to the consumer. Additionally,
the structural increase in demand for food has more than offset the augmentation in
supply.
The problem of inflation goes beyond food. The GDP deflator for the year increased
10.5% compared to 8.2% in FY10. The most aggressive rise in the deflator was in private
consumption but nonetheless, spanned across all components.
We also note that GDP (ex-government consumption) is exceptionally strong. We
estimate it at 10.6% compared with 8.2% in the previous year. Against this backdrop, it is
now important that the government consolidates its fiscal position in a more resolute
manner. A tighter fiscal policy would be a very effective inflation antidote.
From a monetary policy perspective, the data only reinforces our view that the RBI is not in a
conclusive stage of tightening as yet. We continue to forecast another 100bps of rate hikes
over the next 12 months.
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