India tipped to overtake China in Modi’s first year despite sluggish feel

Celebrating his first year in office, Prime Minister Narendra Modi has basked in the success of transforming India into the fastest growing major economy. But there are nagging doubts over whether a new way of calculating GDP, introduced by the government earlier this year, has distorted the macroeconomic view.

The economy is not as strong as the GDP numbers might suggest.

Shilan Shah, India Economist at Capital Economics

The robust headline growth is hard to square with weak industrial activity, grim corporate earnings and an elusive recovery in bank credit. The median estimate from a Reuters poll of economists put GDP growth at 7.3 per cent in the January-March quarter, slowing from 7.5 per cent in the previous quarter. For the 2014/15 fiscal year ending in March growth is expected at 7.4 per cent, up from 6.9 percent in 2013/14, using the new series. That is a startling turnaround from the previous data series that showed the economy was still struggling to gather steam after posting two successive years of growth below 5 per cent - the longest spell of such low growth in a quarter century.

So far, not enough has been achieved to suggest that India can fulfil its economic potential over the medium term.

Shilan Shah, India Economist at Capital Economics

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