Thu May 31 07:00:00 CDT 2018

Consensus Actual Previous Revised
Change Y/Y 7.3% 7.7% 7.2% 7.0%

India's gross domestic product increased 7.7 percent on the year in the three months to March, picking up from an increase of 7.0 percent in the three months to December and exceeding the consensus forecast of 7.3 percent. This is the third consecutive increase in year-on-year growth and the strongest growth seen since mid-2016.

The increase in headline year-on-year growth in the three months to March was relatively broad-based, with most sectors of the economy recording stronger growth in gross value added, including agriculture, mining, manufacturing, utilities and construction. Growth also picked up in the public sector but weakened in other parts of the services sector.

The Reserve Bank of India's next policy review is scheduled for next week. At the last review, held early April, officials left the main policy rate, the repurchase rate, unchanged at 6.00 percent. Officials also noted recent improvements in domestic demand and revised up their forecast for economic growth in the fiscal year just started from 7.2 percent to 7.4 percent, up from 6.7 percent last fiscal year.

With officials relatively positive about the growth outlook but still wary about the inflation outlook, a majority of the MPC concluded at the April meeting that policy rates should stay on hold and that the policy stance should remain "neutral". Since that meeting, however, some key risks to the outlook have intensified, including higher oil prices, stresses in the domestic financial sector, and a weaker currency.

Gross domestic product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy. Annual growth rates, the main focus, are released on a quarterly basis, normally around the end of the second month after the reference period. However, recent methodological changes have raised some doubts about of the accuracy of the data.

GDP is the all inclusive measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. Stock market investors like to see healthy economic growth because robust business activity translates to higher corporate profits. The GDP report paints an image of the overall economy and tells investors about important trends within the big picture.

Each financial market reacts differently to GDP data because of their focus. For example, equity market participants cheer healthy economic growth because it improves the corporate profit outlook while weak growth generally means anemic earnings. Equities generally drop on disappointing growth and climb on good growth prospects. Bond or fixed income markets are contrarians. They prefer weak growth so that there is less of a chance of higher central bank interest rates and inflation. When GDP growth is poor or negative it indicates anemic or negative economic activity. Bond prices will rise and interest rates will fall. When growth is positive and good, interest rates will be higher and bond prices lower. Currency traders prefer healthy growth and higher interest rates. Both lead to increased demand for a local currency. However, inflationary pressures put pressure on a currency regardless of growth.

The quarterly national accounts series are not published in seasonally adjusted form. The publications contain growth rates in comparison with the corresponding quarter of the previous year. The Quarterly Gross Domestic Product (QGDP) estimates are now released by the CSO on the last working day after two months of the end of a quarter. Data are for the prior quarter. Data released on February 28, 2013 are for the fourth quarter 2012.

To the extent that it was feasible, the accounts implemented the recommendations of the System of National Accounts (SNA), 1993 and 2008 prepared under the auspices of the Inter Secretariat Working Group on National Accounts comprising of the European Communities (EUROSTAT), International Monetary Fund (IMF), Organisation for Economic Cooperation and Development (OECD) United Nations and the World Bank.