Based on India's GDP growth for Q1 FY15 at 5.7% (SBI at 5.88%), we are now revising our forecast for FY15 GDP to 5.78%. Non-agricultural GDP expanded at 6%, the highest since Q4 FY12.
1. Our optimism is based on a stronger manufacturing growth, led by a modest investment revival propelled by an earlier than anticipated jump in discretionary consumer spending. Read Full Report
2. Agriculture is likely to post a modest 1% growth (vis-à-vis 4.7% in FY14), industry at 4.4% (vis-à-vis 0.4% in FY14) and services at 7.5% (vis-à-vis 6.8% in FY14). During Aug’14 month, rainfall has improved and was 91.7% of LPA (within projections). We are hopeful that rabi output that is rain independent should continue to have a larger pie in foodgrain output, as trends suggest.
3. The widely anticipated pick-up in investment cycle could materially happen more towards end of Q3 FY15.
More importantly, we are factoring in a pick-up in manufacturing activity, as there are evidence of sharp inventory drawdown in Q1 of current fiscal. Interestingly, inventory as % of GDP that declined significantly to 1.7%, increased to 1.8% during the quarter.
4. It may be noted that inventory accumulation had jumped from 2.5% of GDP in FY05 to 4.1% of GDP in FY08, as India chugged along at an average growth rate of 9.5% during FY06-FY08. Hence such inventory build-up as and when happens will be clearly growth supportive.
5. Service sector growth rate should bounce back to 7.5% in FY15, on the back of resilient segments and a global recovery. Interestingly, the Jan Dhan scheme may act as a fillip to deposit growth and this may act as a positive drag on the Finance segment within Services.
6. All in all, we should not be surprised if manufacturing sector posts an even stronger growth than 4.5%.”
By Dr. Soumya Kanti Ghosh, Chief Economic Adviser, Economic Research Department, State Bank of India.