India’s growth trumps China, but data questioned

India’s economy grew at a faster rate than its Chinese counterpart for a second straight quarter, but nagging concerns remain over the government’s new way of calculating its growth data and how the robust growth figures belie broad economic weaknesses.

Gross domestic product (GDP) for the January-March period grew 7.5 percent from the year-ago period, data showed on Friday, compared with 7.3 percent expected in a Reuters poll and after expanding 7.5 percent in the previous quarter.

By comparison, China’s economy expanded an annual 7.0 percent in the first quarter after logging 7.3 percent growth in the fourth quarter of 2014.

India’s GDP print may seem impressive but analysts said activity indicators at the ground level suggest otherwise.

“About 60 percent of GDP is still in the woods,” Pranjul Bhandari, chief India economist at HSBC, said in a note prior to the data release.

“On the production side, agriculture, construction, banking and public services are not showing signs of improvements. On the expenditure side, rural consumption, government spending and exports remain lackluster.”

While recovery is seen in the remaining 40 percent of GDP – which includes the manufacturing, utilities, trade and transportation sectors – the pace of recovery remains “very slow,” she added.

The picture is clouded further, as the debate escalates over a new formula to calculate economic growth, introduced by the government earlier this year in what it says will match global practices.

In January, the Central Statistics Office, using a new method, said that India’s real or “inflation-adjusted” GDP in 2013-14 grew 6.9 percent instead of the earlier 4.7 percent and by 5.1 percent in the year before, compared with 4.5 percent in the earlier system, the Hindustan Times reported.

“Like a lot of people, we’re rather scratching our heads on the new GDP (methodology) numbers,” Richard Iley, chief economist of Asia with BNP Paribas, told CNBC.

“A lot of the harder indicators that we look at beneath the surface of the Indian economy, PMI surveys, credit growth, industrial output itself on the monthly numbers have been pretty sluggish. There’s not really much support coming up from the underlying data to suggest this is really a 7-7.5 percent economy,” he added.

One person likely basking in the strong data would be Prime Minister Narendra Modi, who is celebrating his first year in office this month. Modi’s reputation as a reformer drew high expectations of change, but that’s been tempered in recent months by the slow pace of reforms.

The disappointment has also been reflected in the stock markets, with the BSE Sensex down nearly 8 percent from record highs in the beginning of March.

The Reserve Bank of India will meet on Tuesday amid growing expectations the central bank will cut rates for the third time this year, with expectations it will trim 25 basis points off the repo rate to 7.25 percent.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.