Experts doubt Indian growth story as government says GDP growing faster than China

New Delhi: By posting 7.5% GDP growth for the January-March 2015 period, India has emerged as one of the world’s fastest growing economy, outstripping China's 7% growth in the same quarter,according to data released by the government on Friday .

India also celebrated faster growth than its larger neighbour in the December quarter, but on Friday the Central Statistics Office sharply revised growth down to 6.6% from 7.5%, further distorting the picture.The sharp downward revision for the previous quarter has fuelled doubts about the accuracy of a new method used to measure economic activity.

Economists were already having a hard time reconciling the headline numbers with dismal corporate earnings, weak industrial activity and an elusive recovery in bank credit.

Full-year growth for the fiscal year ending in March came in at 7.3%, data on Friday showed, up from 6.9% in 2013/14, a tad lower than an official estimate of 7.4%.

Back in December, the government estimated growth for the year would be 5.5% using the old methodology. That would have represented a modest improvement after two successive years of growth below 5%-- the worst in a quarter century.

But the Statistics Office's reworking of the numbers has transformed India's official growth pace under Prime Minister Narendra Modi, who made economic reforms a priority during his first year in office.

Below are comments from analysts on the data:

DK Joshi, Chief economist, Crisil, Mumbai

"There is some disconnect between the GDP numbers and the situation on the ground.

"I think there are methodological issues. That is why there is a variance between the volume indicators available at the ground level and value indicators which are being increasingly used in the computation of the GDP.

"It will take us some time to understand that. These numbers should not influence the central bank.

"We expect the central banks to cut rates by 25 bps on June 2."

Radhika Rao, Economist, DBS, Singapore

"The RBI Governor has highlighted his reservations on the new data series.

"Hence policy makers are likely to infer the growth momentum from other lead indicators like industrial production, non-oil non-gold imports, and PMIs (purchasing managers indexes). The common undercurrents there are that a recovery is taking place, but it has been a very gradual process.

"To that extent, the recovery trend will be interpreted as modestly positive and not as strong as the new headline GDP seems to suggest. We reckon Tuesday's rate cut is still on the table.

Abhishek Upadhyay, Economist, ICICI Securities Primary Dealership Ltd, Mumbai

"This data is based on value-added, so it is difficult to feel and correlate with what is happening to high frequency data like credit growth, rural and urban wages and passenger car sales, which are all still weak.

"RBI will have to feel its way in the economy to get an idea about prices and be confident about their inflation projection. We expect the RBI to cut the repo rate by 25 basis points."

Shilan Shah, Indian economist, Capital Economics, London

"The big picture is that the official GDP data are overstating the strength of the economy, most probably by a significant margin.

"The Reserve Bank (of India) appears to be putting more emphasis on indicators such as capacity utilisation, bank lending, sales of consumer goods and core inflation in policy decisions. On these measures, the case for further policy loosening remains strong.

Shubhada Rao, Chief economist, Yes Bank, Mumbai

"The downward revision in Q3 suggests some loss of momentum began in the second half of FY2015.

"The GVA (gross value added), however, has a different story to tell, showing a marked sequential slowdown from Q2 onwards, implying that larger growth has come on account of net taxes on products.

"Agriculture, electricity, construction, finance and public services sectors have slowed in the last quarter.

"Worries of disconnect persist. High frequency data suggests a larger slowdown in Q4 and not in Q3. We continue to rely on high frequency indicators. Challenges remain for understanding the deviations".