Consensus: High Consumption, weak investments and lower savings to continue in FY17

India’s gross domestic product (GDP), or the sum total of all the goods and services produced in the year gone by, stood at 7.6%. The fourth quarter ended March 31, 2015 clocked in 7.9% growth making India the fastest growing large economy.

But there are some unanswered questions.

Indian Industrial Production (IIP), or factory output, came in at just 2% higher last fiscal.

Industrial output in India increased a meagre 0.1 % year-on-year in March of 2016, slowing sharply from a 2 % rise in the previous month.

How does factory output in India grow so slowly while the total GDP leaps?

Are services alone pushing the GDP higher?

Sonal Varma and Neha Saraf of Nomura, in a report dated May 31, 2016 said, “The headline GDP data suggest that the underlying recovery continues at a gradual pace, although it is still rather narrowly based, driven primarily by private consumption, while private investment is yet to show any signs of a turnaround.”

The road ahead

The two said, “Looking ahead, we see three positive impulses to growth: the seventh pay commission hikes, a normal monsoon and ongoing public capex. At the same time, our leading indicators suggest that there is still no sign of an export or private capex turnaround.”

HDFC Securities, in a June 1, 2016 report said, “The farming sector grew by 2.3% from a year ago compared with a 1.0% contraction in the December quarter. With good rain forecast, after two successive years of drought, farm sector output should improve in coming months and lift depressed demand in the countryside where two­thirds of Indians live.”

Nikhil Gupta of Motilal Oswal, on May 31 wrote, “Going forward, we expect the current economic model – high consumption, weak investments and lower savings - to continue in FY17 also. Better monsoon in FY17 could lead to higher real GVA growth pushing real GDP growth higher.”