Indian economy grew at 5.7% during first quarter of fiscal 2015. The market had forecasted gross domestic product (GDP) growth to come at 5.8%. GDP growth stood at 4.6% in the fourth quarter of fiscal 2014.
GDP growth was boosted by the substantial 8.8% rise in Government final consumption expenditure (GFCE) in Q1FY15, albeit slower than the 12.9% growth in Q1FY14, said ICRA Research.
"Some factors that boosted GDP growth in Q1FY15 are unlikely to sustain in the ongoing quarter, such as a temporary pickup in activity (adjusting for seasonality) in construction following low rainfall in June 2014. Moreover, the growth of hydroelectricity generation is expected to ease with sub-par monsoon rainfall impacting reservoir levels. Furthermore, recent news reports suggest critical levels of coal stocks at several thermal power plants, which may impact thermal generation," it said.
Additionally, the delay in kharif sowing would have some first-round (agricultural output) and second-round (consumption) impact on the growth momentum in Q2FY15. Moreover, Indian exports are likely to record moderate expansion in the remainder of FY15, given the expectation of a mild pickup in global growth, erosion of competitiveness of Indian exports on account of sticky inflation, and bleak outlook for exports of agricultural & allied products following a weak monsoon.
"The sustainability of the high growth of GFCF in the immediate term is uncertain, given the continuing issues related to land acquisition, availability of feedstock and raw materials, high leverage levels of developers and impaired asset quality of Banks. The pace of resolution of various structural issues, simplification of business and taxation rules and fast-tracking of approvals would crucially impact the strength and sustainability of a capex revival in India," ICRA added.
ICRA continues to expect GDP growth of 5.3-5.5% in 2014-15 as compared to 4.7% in 2013-14 and 5.7% in Q1FY15.
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