India’s GDP Numbers: Inflation Worries Extend, Growth Concerns Widen

Nikhil Gupta, Chief Economist at Motilal Oswal Financial Services, feels that India could see inflation worries and growth concerns, following the GDP number.

"As against our forecast of 1.2% and market consensus of 1.6%, real GDP grew 3.1% YoY in 4QFY20. This is only marginally slower than 3.5% in 3Q but the lowest in 11 years (0.2% in 4QFY09). Notably, growth for 1Q-3QFY20 was revised down from 5.4%, 4.8% and 4.5% earlier to 4.8%, 4.3% and 3.5% respectively.

Although the headline numbers are much higher than expectations, details suggest that core real GVA (ex agriculture and community services) grew at all-time low 1.1% YoY in 4Q vs. previous all-time low of 2% in 3QFY20 (since 1998 when quarterly data became available). This was in line with our forecast," he stated.

"Further, private consumption grew only 2.7% (reflecting impact of COVID), while fiscal consumption grew very strongly at 13.6% last quarter. Gross investments declined for third consecutive quarter at 6.5% in 4QFY20.

Overall, better-than-expected growth in agriculture and fiscal spending (explained by 4.6% fiscal deficit in FY20) led to higher GDP growth. We expect real GDP to decline 21% in 1QFY21," he stated.