Is the GDP number, in line with your expectations?
Very much in line with our expectations. We had expected 7.9%. It is 7.8%, which is in line. We will be seeing if manufacturing is driving this relatively high growth. What is the role of net exports? Exports minus imports, then services and agriculture. The other thing that we will be looking at very closely is the effect of the WPI inflation which is a large part of the manufacturing GDP deflator. That is the overall basket that we are looking for. But the headline number is very close to our expectations.
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Let us look at two very important data that most are talking about, which is manufacturing and service. Service is around 7.9% while manufacturing has come down to 4.7%. How do you read it?
Manufacturing is a surprise, because manufacturing is something that we had expected would have been higher because of the numbers from the first quarter financials of the listed companies that is used to track the nominal growth in GVA, which is the profits and the employee services, wage costs and so that is a little bit surprising.
Given that the IIP numbers have been very strong, which is the informal set of the manufacturing numbers, the services are a little bit higher than the 6.5% we had expected. Hotels and restaurants is the one that presumably has contributed to the higher services growth. Manufacturing is a worry because manufacturing going forward into Q2, is likely to come down. So manufacturing, if it actually stalls, in addition to the agricultural uncertainty, given the low rains that we have seen in August, might actually pull GDP growth even lower than the 6.2% that we have been expecting and forecasting for Q2. That is likely to pull down overall annual growth for GDP from our current estimates of 6.4% to 6.3 or 6.2%.
So that is the overall sense that we are getting. On the external front, it is very important given that trade is slowing, how much the slowdown in trade is likely to cost on the overall headline GDP growth needs to be monitored significantly.
Going ahead, what do you think is going to be the driver for our growth and also the expected boost to growth from the upcoming elections both at the state and the central level? How do you see this panning out now from here on looking at these numbers and this break-up?
That is a very interesting question, I was just seeing some of the numbers for Q1, private consumption grew at about 5.9%, so 6% growth in consumption. Capital expenditures have grown a little bit lower but it is still fairly robust.
Depending on how consumption moves going forward and given the fact that some of these subsidies are being increased, some of the prices for commodity, basic energy etc. is beginning to be lowered, that will put a little bit more money in people’s hands, in household’s hands, family’s hands and that should push up consumption a little bit. The agricultural terms of trade, given the high prices of agriculture will probably increase rural spending a little bit. So that is good news. Overall my sense is it will be relatively balanced. The future growth in Q2, Q3 etc. will be balanced between consumption and investment and if consumption remains robust and if capacity utilization as the RBI surveys suggest, it’s moving towards that 78% threshold.
Some amount of private investment will also happen, although nothing very spectacular before the general elections are likely to come in. Growth drivers are likely to be relatively balanced, but within the domestic sphere. Externally, it is not going to go up significantly, but my hope is that services exports begin to contribute a little bit more as some degree of stability in the global environment begins to happen.
We are very close to the peak of the rate hike cycles in the US and in Europe, if not already there. A little bit more certainty is beginning to emerge from this extreme uncertainty in the global environment and that should be good news for services exports. Overall, there will be a little bit of a push from the external sector, but the main drivers of growth in Q2 and Q3 are likely to be domestic.
