Article by
Pablo Shah, Economist, Centre for Economics
and Business Research
Indian
economy records rapid growth in Q1 2018, maintaining status as
world’s fastest growing major economy
The Indian
economy grew at an annual rate of 7.7% in the first quarter of
2018, according to data from the Ministry of Statistics and
Programme Implementation. This is a considerable increase on
the 7.0% annual growth rate recorded in Q4 2017, and cements
India’s status as the world’s fastest growing major economy,
ahead of China which grew at 6.8% in Q1 2018.
The stand out
sectors last quarter were the manufacturing and construction
sectors, which expanded at an annual rate of 9.1% and 11.5%
respectively. The cash reliant construction industry was among
the sectors most heavily impacted by demonetisation at the end
of 2016. In the first quarter of 2017, GVA from the
construction sector contracted at an annual rate of 3.9%.
However growth in this sector has since accelerated
dramatically, boosted by strong government investment in
infrastructure and housing. The increased transparency that
demonetisation has brought to the construction sector is also
likely to bolster investment going forward.
The strong
performance of the Indian economy at the start of 2018 was
largely powered by investment, with gross fixed capital
formation (GFCF) growing by 14.4% in Q1 2018. The share of GFCF
in GDP rose to 32.2% in the first quarter of 2018, compared to
30.3% a year earlier. As India remains a developing country,
investment has the potential to deliver rapid productivity
gains, and the growing share of GFCF in GDP is a promising sign
for growth going forward.
Private
consumption grew at an annual rate of 6.7% in Q1 2018, slightly
below the economy wide average. The sharp depreciation of the
rupee in the first months of 2018 together with an escalation
of oil prices has led to a rise in inflation which has put
pressure on household incomes. Meanwhile, the unemployment rate
reached 6.2% in March 2018 compared to 4.8% at the end of 2017,
which will also have weighed on consumption. Private
consumption accounts for 55% of India’s GDP, so sustaining the
economy’s strong performance in the medium term will be
contingent on the proceeds of growth feeding into higher
household incomes.
In the 2018
World Economic League Table, Cebr forecasted that the size of
the Indian economy in US dollar terms would overtake the UK and
France over the course of 2018. The depreciation of the rupee
and the strengthening of the pound against the dollar have
delayed this event somewhat. However, the rapid growth that
India is experiencing together with the slowdown seen in the UK
and France mean that the overtake remains very much on track.
Cebr forecasts the Indian economy to expand by 7.4% and 7.0% in
2018 and 2019 respectively, which would see it pass the UK and
France towards the middle of 2019.
