GDP Update - Q1 2011-12

·  Overall GDP Growth :

GDP grew by 7.7% (y/y) in Q1 2011-12, largely in line with the market expectation for reading of around 7.6%.

The strong growth (y/y) was maintained under the agriculture and services segment. The industry segment growth in present quarter softened over same quarter of previous fiscal.

·  Agriculture output : It grew by 3.9% (y/y), which was considerably strong compared to 2.4% growth seen in the same quarter of previous fiscal.

v  According to today’s release, the production of Food Crops - rice, wheat, coarse cereals and pulses during  the  Rabi  season  of  agriculture year 2010-11 (which ended in June 2011) recorded growth rates of 11.3%, 6.3%, 0.7% and 4.9%, respectively over the production in the corresponding season of previous agriculture year.

v  Among the Commercial crops, the production of oilseeds increased by 12.0% during the Rabi season of 2010-11 (which ended in June 2011).

·  The Industry segment of GDP grew by 6.7% in Q1 of 2011-12, which was lower compared to 9.7% growth seen for Q1 2010-11.

According to the estimates available on IIP (new series) for Q1 2011-12 :

SEGMENT of INDUSTRY	Y-O-Y Growth (%)
MINING	1.0
MANUFACTURING	7.5
ELECTRICITY	8.2

·  The Services segment of GDP grew by 8.9% (y/y) in Q1 2011-12, against 10.1% growth observed same quarter previous fiscal.

v  Among the services sectors, the key indicators of Railways, namely, the net tonne kilometres and passenger kilometres have shown growth rates of 6.3% and 6.1%, respectively during Q1 of 2011-12.

v  In the Transport and Communication sectors, the sales of commercial vehicles, cargo handled at major ports, cargo handled by the civil aviation, passengers handled by the civil aviation registered growth rates of 14.1%, 5.2%, 4.9% and 14.6% respectively during Q1 of 2011-12.

v  The total stock of Telephone Connections (including WLL and cellular) registered growth of 34% during Q1 2011-12. The other key indicators, namely, aggregate bank deposits, and bank credits have shown growth rates of 18.7%, and 21.0%, respectively during Q1 of 2011-12.  

·  New series of IIP (base year 2004-05)  :The current release has seen new series of IIP (base year 2004-05) being used for compilation of GDP data.

v  The usage of new series of IIP data has resulted in revisions under the heads of mining, manufacturing, electricity, and trade, hotels and restaurant sectors in GDP.

v  Accordingly, the data for Q1 2009-10 and 2010-11 has seen considerable upward revisions under the manufacturing sub-segment; while there have been marked downward revisions under the trade, hotel, transport and communications sub-segment.

·  On the Expenditure side, GDP growth for Q1 2011-12 was at 8.5% (y/y) compared to 9.1% seen same quarter previous fiscal.

v  Personal consumption slowed to 6.3% (y/y) in Q1 2011-12 compared to 8.0% seen in Q4 2010-11 and 9.5% in Q1 2010-11.

v  The Government consumption fell sharply to 2.1% in Q1 2011-12, against a growth of 6.7% recorded same quarter previous fiscal.

v  The growth in Gross Capital Formation too was slower at 9.6% in Q1 2011-12, against a growth of 12.1% seen in Q1 2010-11.

·  The introduction of new IIP series has also led to revision of estimates under Private Final Consumption Expenditure (PFCE), and Gross Fixed Capital Formation (GFCF), which are the components of the expenditure side of GDP. Accordingly, the PFCE has seen downward revisions for both Q1 2009-10 and Q1 2010-11. On the other hand, the GFCF has seen upward revision in Q1 2009-10 and downward revision in Q1 2010-11.  

·  For the fiscal year 2011-12, we continue to expect sub-8% real GDP growth, factoring impacts of continued slowdown in advance economies and moderation in emerging market economies.

v  Domestically, the high rate of inflation and tight monetary policy is expected to negatively impact the second quarter GDP data. However, as the inflation pressures recede and monetary policy tightening peaks out, we expect to see better growth numbers in Q3 and Q4.

v  As regards the September monetary policy review, despite visible moderation in the economy, the bias of the policy may tilt towards further tightening if the upcoming inflation data is seen nearing double digit levels.