Ind-Ra: CSO to Miss FY16 GDP Growth Forecast by a Whisker, Gross Value Added Forecast to be Attained

The FY16 real gross value addition (GVA) will be achieved as per the advance estimate of the central statistical office (CSO); however gross domestic product (GDP) growth may miss the estimate by 10bp, says India Ratings and Research (Ind-Ra). The GVA projected at 7.3% at basic prices for FY16, will be achieved as per the advance estimate. The GVA during 1QFY16, 2QFY16 and 3QFY16 grew by 7.2%, 7.5% and 7.1% respectively. Ind-Ra expects the 4QFY16 GVA to have grown by 7.4%.

At the same time, Ind-Ra expects gross domestic product (GDP) in 4QFY16 to have grown by 7.4%, which translates into the FY16 GDP growth of 7.5%. The GDP during 1QFY16, 2QFY16 and 3QFY16 grew by 7.6%, 7.7% and 7.3% respectively. The FY16 GDP growth is likely to have been marginally lower than the FY16 advance estimate of 7.6%. Ind-Ra notes that any change in the 4QFY15 or the annual FY15 growth by the CSO, will have an impact on the quarterly and annual growth estimates.

Ind-Ra believes that the agricultural GVA growth can surprise positively, despite the second consecutive year of sub-par monsoons, mainly due to the unseasonal rainfall during 4QFY15. The growth in industrial GVA during 4QFY16 is likely to have declined from the 3QFY16 level, however Ind-Ra estimates it to have been better than 4QFY15. The main support to the industrial performance is driven by the strong performance of the electricity sector. The construction sector is likely to have performed better than the 3QFY16 and 4QFY15. The cement production in 4QFY16 grew by 11.4% (3QFY16: 4.3%, 4QFY15: -0.5%). The production of steel was flat in 4QFY16, but its performance improved from the contraction in 3QFY16 (-4.7%) and 4QFY15 (-1.3%).

Leading indicators of the service sector - namely air and port cargo and petroleum consumption points towards a stable GVA growth for the service sector.

On the expenditure side, the private final consumption expenditure (PFCE) is the largest component of the GDP. As per the CSOs advance estimates, it was estimated to have grown by 7.6% in FY16. In 1QFY16, 2QFY16 and 3QFY16 PFCE grew by 6.4%, 5.6% and 6.4% respectively. Ind-Ra expects FY16 PFCE to have grown by 6.3%, lower than the CSO advance estimate of 7.6%. With a large share in the GDP, PFCE's growth trajectory has a significant impact on GDP growth. Ind-Ra expects a minor underachievement in the FY16's gross fixed capital formation (GFCF) growth forecast of 5.3%.

GDP and GVA for the period Q4FY16 and FY16 is scheduled to be released on 31 May 2016.

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