Indian growth data disappoints again

We still expect a recovery in Indian growth over the next two years, to 7%+ territory. However, it looks like the process may take longer than we first anticipated.

GDP and GVA below consensus expectations again in Q3

Both Gross Domestic Product (GDP) and Gross Value Added (GVA) disappointed again in the latest quarter’s data, with GDP growing 6.3% year-on-year (y/y) and GVA 6.1% y/y, both 0.1 percentage points below expectations.

This was at least an improvement on the 5.7% GDP growth and 5.6% y/y GVA growth the previous quarter, but it is a touch worrying that no amount of downgrading of expectations seems to suffice for Indian growth at present.

Manufacturing provides positive surprise

On the bright side, there was a positive surprise from the manufacturing sector, which has struggled this year. Recovery from disruptions related to the Goods and Services Tax (GST) may take a while longer, but it is reassuring to know that some damage has been repaired.

Trying to offer further reassurance, the statistics office also said that the GST had caused problems with estimating growth, such that the quarter’s growth is likely to be subject to upward revisions. So perhaps growth is not so weak as it first appears.

Agriculture and construction still struggling

Still dragging on the economy are agriculture and construction, both of which have suffered from the demonetisation policy and still seem to be struggling. It is harder now to blame this weakness on a policy from a year ago, and so also more difficult to ascribe this to transitory factors alone. Rural incomes will remain under pressure as a result.

Finally, government consumption was somewhat softer, inevitable after a frontloading of expenditure and probably unlikely to change much given the extra costs associated with the bank recapitalisation plan.