Schroders Quickview: India GDP surprises, but we have our doubts

India’s fourth quarter GDP growth slowed slightly but still beat estimates, at 7.3% year on year. While the number confirms India’s place as the fastest growing major economy, we have some reservations; the quality of both growth and data are in question.


Craig Botham

Craig Botham

Emerging Markets Economist

Exports and imports disappoint

Digging down into the data shows the final quarter’s performance was driven by consumption and government spending, while investment weakened.

Imports contracting even more rapidly than exports meant net exports contributed positively to growth.

Given the overwhelming need for investment in India, this is a disappointing result despite the stronger-than-expected GDP number.

That growth is increasingly reliant on current spending also suggests to us that this is not a particularly sustainable formula, especially in light of the announced fiscal consolidation path, and the fading boost from cheaper energy.

An expansion in credit provision can help for a time but this does not create secure longer-term foundations in the absence of investment in productive capacity.

How accurate is the data?

We also have concerns over the accuracy of the data, which are at odds with other indicators.

Industrial production, for example, likely grew around 5% year on year in the fourth quarter of 2015 while national accounts data indicate a 12.6% year on year increase in manufacturing in the same period.

Based on a composite of higher frequency data we believe growth in GDP to be closer to 5-6% than the 7.3% reported.

While a consumption-led story may have some legs left given the willingness of private sector banks to lend, India’s longer-term growth aspirations remain dependent on economic reform that prompts productive investment.

We are still waiting, and our eyes now fall on the February budget.

Important information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This article is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested. Issued by Schroder Investment Management Limited, 31 Gresham Street, London EC2V 7QA, which is authorised and regulated by the Financial Conduct Authority. For your security, communications may be taped or monitored.