‘A reasonable amount of growth momentum exists in the Indian economy’: Anitha Rangan, Economist, Equirus Securities

India’s Q4 GDP figures show there is considerable momentum in the economy, led by agriculture and construction, but the lagging government consumption expenditure and household savings could be key concerns going forward, says Anitha Rangan, Economist, Equirus Securities in an interaction with Fortune India. Edited excerpts.

Q. At 7.4% growth in Q4, FY25, GDP numbers surpassed all expectations. Kindly give us a holistic view of how the numbers look to you?

AR: The numbers are in line with the first advanced estimates of the GDP. Slight down shift is visible in hotels and transport. Manufacturing and agriculture have done better than our expectations. On the manufacturing front, anticipation of tariffs in the Q4 may have led to lead to more production, and subsequently, exports. Nominal GDP has come down to 9.8%, which is a slight decline from what was anticipated.  

Gross fixed capital formation (GFCF) is slightly lower than what was expected. GFCF: GDP ratio is 32.9%, slightly lower than 33.4% in the last year. It is because of the fact that the government capital expenditure has been slow.

So what do these actually translate into? With these numbers, one can safely say that household savings rates may not have meaningfully picked up in FY25 also. As there are no big bang gross capital formation. So, savings still has to pick up.

Q. That said, this is the best quarter compared with the previous quarters this year. What has actually worked?

AR: Major factor is revival of agriculture. Agriculture growth in the first half of FY25 was 2.8%. In the second half, it went up to 5.9%. In Q4, agriculture sector revived meaningfully well. Even in terms of CAGR, agriculture is growing at 5% growth since FY20.

The other sector doing well is construction. Manufacturing has seen a little bit of a revival in Q3 and Q4. But on a trend basis Q2 was bottomed out because of various factors, but we are seeing a revival in Q3 and Q4.

Q. Is it safe to safe that the growth momentum continues in the Indian economy?

AR: Most of us were sceptical about the 6.5% GDP growth in FY25 in the first place. But since it has been achieved, it means there is reasonable amount of growth momentum still there. And what I would also look at is CAGR versus pre-pandemic levels. CAGR growth is still holding at 5.2 and you are seeing an improvement on a year on year basis.

We have surpassed the pre-pandemic level. If you are getting incremental growth since pandemic, it is a big positive, because we were slowing down before pandemic. 9.2% growth was a catch up growth at the least. From here, sustaining with 6.5% growth, and growing at a CAGR of about 5% is reasonably good because at least you're having an incremental growth. It is not that growth has plateaued out.

Q. You have mentioned about gross fixed capital formation slowing down as a percentage of GDP. Is there a major concern there?  

AR: There is not much of an impact on YoY basis. But if one looks at gross fixed capital formation as a share to GDP and parallelly savings as a share of GDP, one would see the momentum slowing down. The government did fix the capital spending towards the fag end of the fiscal in a major way, but still there was some slack all throughout the year.

With so much global uncertainty going on, if government keeps its capital expenditure engine rolling, a large part of uncertainty will get ruled out. I think we need to have stronger capital formation as it helps the overall growth.

Q. Consumption is one of the concern areas. What are the trends that you see when it comes to private final consumption expenditure? 

AR: A lot of decline in consumption has been led by rural consumption not picking up. Commentary from FMCG players have established that rural consumption had been a problem area. However, from the third and fourth quarter onwards, we have started witnessing a pick up in the rural consumption. Also festive season was pretty good. Strong pick up in Q4 was also because of good rabi crop. Prospectively you should see rural consumption supporting your private final consumption expenditure.

For the urban site we have income tax cut. So consumption should be positive.

Q. Government's final consumption expenditure growth has remained tepid at 2.3%. What does it actually mean and is it a major cause for worry?  

AR: It is worrying. Because every expenditure under the government consumption is not meant only for revenue side. Payouts for say, PLI, various subsidies, building water infrastructure, and housing are allocated under that head. All these have indirect impact.

They are very critical for growth. If that spending does not happen constructively, then you actually don't get potential growth.