Mar 01, 2018 2 min read

India’s Growth has Picked Up to Beat China: Fastest Growing Economy With GDP Rate 7.2%

India economic growth rises to 7.2% in Q3 and has replaced China to become the fastest growing economy again.
Amid the signs of the economic recovery from the impact of demonetization and GST, India has come out with flying colors on this festive season. Indian economy has picked up its pace to grow 7.2% in the quarter of October-December of the FY 2017-18.

Based on Q3 GDP data as furnished by the Central Statistical Office (CSO), the GDP has been revised upwards to 6.6% for the whole year. Moreover, according to Moody's Investors Service, India will grow 7.6% in calendar year 2018 and 7.5% in 2019.

According to the latest estimations, the regain in the momentum of the growth were due to the encouraging trends seen in the corporate earning and industrial-output data. This recovery is said to be ignited by a revival in the investment demand which has registered a growth of 12%. The statisticians expect the size of Indian economy to grow to $2.6 trillion by the end of March, provided that this GDP growth rate is realized.

The growth rate of 7.2% is the highest in the past five-quarters, enabling the country to regain its status of the fastest growing economy in the world. This time India’s GDP has managed to beat the Chinese economy that recorded a 6.8% growth rate during the same quarter.

The rise in India’s growth rate indicates that the country is catching its breath over the disruptions caused by the demonetization of high-value currencies and imposition of the GST. The situations have stabilized due to the measures that were included to balance the disproportion in the rural economy, by the Budget for 2018-19.

As per the data released by the CSO, the health of the economy has picked up since last quarter. The absolute gross value added (GVA) for 2017-18 has been revised to 6.4%, as it grew to 6.7% in October-December from the 6.2% of the previous one. Based on the estimates of the growth for Q3 of 2017-18, manufacturing, agriculture, services, and construction were the key drivers in boosting the growth.

The farm sector GVA extended to 4.1% as compared to 2.7% in the previous quarter. The GVA for manufacturing sector grew to 8.1% in this quarter in comparison to the 6.9% previously. Similarly, construction sector recorded a growth of 6.8%, higher than 2.8% in previous quarter. "Robust growth in manufacturing and significant acceleration in construction will mark a turnaround in the country’s economic growth momentum,'' the finance ministry said in a statement.

The services segment including financial services has also witnessed a growth and reached 6.7% from 6.4% of the previous quarter. The sector that has outperformed everyone was infrastructure whose outputs have demonstrated a substantial growth of 6.7% in January to beat the 4.2% from the preceding year. This quarter has seen a significant boost in all the major sectors.

Apart from the above, communication, hotels, trade, transport, and services related to broadcasting at grew up to 9%. In the same way, electricity, gas-water supply and other utility services had fostered their growth to 6.1%. In addition to the above expectations, Moody’s has asserted that the bank recapitalization plan will also help credit growth over time, thereby supporting growth. Looking at the data for the quarter, economists are anticipating India's GDP growth to accelerate further this year, but has they taken the rising fiscal deficit numbers in the account?

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