India's First Quarter GDP Surges-VRK100-29Aug2014

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India’s real gross domestic product (GDP) in April-June (first quarter of 2014-15) surged by 5.7 percent over the first quarter GDP of 2013-14. This is quite positive for the economy and a great relief for the Central Government. The GDP measures a country’s national income and is the total value of all goods produced and services provided within a country. After clocking sub-5 percent growth rates for almost all quarters in the last two years, the GDP growth crossed 5 percent in the latest quarter.

The GDP at factor cost is Rs 14.38 lakh crore in the first quarter of 2014-15. And the GDP at current market prices is Rs 28.43 lakh crore. The surge in the first quarter GDP is led by finance, insurance, real estate and business services (10.4% growth over first quarter of 2013-14); electricity, gas and water supply (10.2% growth); community, social and personal services (9.1% growth); and construction (4.8% growth).

A substantial part of the increase in GDP growth can be attributed to the previous UPA government. The former finance minister P Chidambaram took several steps to revive the economy, though his methods are questionable. The current account deficit was brought under control through some blunt measures, such as, curbing gold imports and raising interest rates. The UPA government controlled the fiscal deficit also, though with the help of some creative accounting, extracting special dividends from cash-rich public sector enterprises and postponing expenditures to the next year.

The surge in GDP growth is a positive for Indian stocks. Global stocks too have been on the upswing for several years though the outlook for the economies of the US, eurozone and China is not very rosy. Prices of crude oil and some other commodities are in decline in recent months—a positive for India.

On expectations of higher growth from the new government, foreign investors have invested heavily in Indian stock and government bond markets this year.

Now the speculation will shift to a possible upgrade in India’s sovereign rating. There have been some rumours that the rating agencies, such as, Standard and Poor’s and Moody’s may consider raising India’s rating. If it happens it will be a boost not only for India’s economy but also for Indian stocks.

However, rainfall from India’s South-West monsoon is deficient in several parts of the country, which may negatively impact agricultural production and livelihoods of millions. The Reserve Bank of India is still battling with inflationary pressures, especially, food inflation.

We also need to watch how the new NDA government led by prime minister Narendra Modi will revive the moribund manufacturing sector and create millions of jobs for India’s restless youth. As far as infrastructure sector is concerned, several measures have been taken in the past three months to revive road and other projects. Indians are hoping for a better future.

Related Articles:

What is GDP? 03Jan2014

Strengths and Weakness of Indian Economy: 01Sep2013

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Abbreviations: NDA – National Democratic Alliance, UPA – United Progress Alliance

Data source: Central Statistics Office, GoI.

Disclaimer: The author is an investment analyst, equity investor and freelance writer. This write-up is for information purposes only and should not be taken as investment advice. Investors are advised to consult their financial advisor before taking any investment decisions. He blogs at:

http://ramakrishnavadlamudi.blogspot.in/

http://www.scribd.com/vrk100

Connect with him on twitter @vrk100