India on a high with GDP growing at 7.9% in March quarter

According to the data released by the Central StatisticsOffice (CSO) today, the growth in manufacturing and farm sectors during the fourth quarter accelerated to 9.3 percent and 2.3 percent, respectively. The core sector data in April too indicated momentum in economic activity as it grew at rate of 8.5 percent inthe month, the highest in the last four years.Below is the verbatim transcript of Pronab Sen, Samiran Chakraborty, Soumya Kanti Ghosh and Vivek Rajpal's interview with Latha Venkatesh and Ekta Batra on CNBC-TV18.Latha: 8.5 percent core sector growth, should it make us extra happy, I have not seen 8.5 percent in long time, but it also comes on a (negative) -0.2 percent in the previous April?Sen: That’s right. If you really correct from the base effect what you are getting is a core sector growth of 4.5-4.7 percent and that’s roughly consistent with a 7.5 percent gross domestic product (GDP).Latha: We also got a very good electricity number of 14.7 percent almost 15 percent. Should that be something we should be cheerful about. Coal has not done well but that we knew. We knew from the Coal India numbers that there is a lot of unsold inventory and so coal was always expected to come negative, it has come negative 1 percent, but electricity 14.7 is that very good news?Sen: Up north here we are sweltering at 48 degree, of course, we are consuming electricity. It is not good news for us, may be good news for the GDP, but we are suffering.Latha: But the nation is able to consume 14.7 percent. I am just asking as a macroeconomic observer should that be seen as one more points toward growth or par for the course?Sen: No, we don’t know. At the end of the day the affordability issue really balls down to the solvency of the state electricity boards. I think the chickens will come home to roost a little late once the power companies send their bills to the electricity boards.Ekta: What is this particular quarter core sector data tell you more about growth in FY17, because we are due for the Q4 GDP figures as well, but that would be more backward looking plus we have got high frequency data such as auto sales which is indicating growth, cement dispatches etc. So is FY17 going to be a better than expected industries as well as GDP growth overall according to you?Sen: The core sector data one has to treat it little carefully because most of the sectors are not actually demand driven, they are supply driven and in a sense if we have been tracking the investment figures properly, the core sector should be pretty much predictable.Latha: Should we assume that FY17 is poised to be much better than FY16?Sen: Well, the efforts for the government has been making in reviving infrastructure investment appear to be paying off. Cement dispatches I think really reflects what happening in the road sector because so far as I can make out the real estate sector isn’t doing anything very much. So it just reflecting something we have been waiting for a little over a year.Latha: First thought Q4 GDP coming in at 7.9 percent instead of 7.6 percent? Better than expected number you would say?Sen: Yes, certainly. I would have been quite happy with 7.6 percent.Latha: Now the gross value added (GVA) in fourth quarter is 7.4 percent and in current prices it is 8.5 percent. Your thought is the period of deflation over?Sen: No, we knew that that the prices were turning up, but its turning up slowly. I want to see more acceleration in the following quarter.Latha: First thoughts on just this number, 7.9 percent gross domestic product (GDP) versus our poll of 7.6 percent and therefore the full year GDP coming at 7.625?Chakraborty: We were expecting a higher number, we were at 7.8 percent. So, it is pretty close to what we were anticipating. The crucial element was the agricultural GDP number. My sense is the number has been good plus the manufacturing side the Gross value added (GVA) of the reported company results must have been very good. So, both these factors put together must be driving this number higher. So, in any case the January-March quarter has been a better quarter in terms of activity data. So, GDP is just reflecting that.Latha: The GVA in fourth quarter is 7.4 percent and in current prices it is 8.5 percent. Your thoughts?Chakraborty: Clearly, if you see the average consumer price index (CPI) number between Q3 and Q4 were pretty much the same but the average wholesale price index (WPI) was much higher in Q4 compared to Q3. So, we were anyway anticipating that GDP deflator will be higher in Q4 compared to Q3. In fact going forward in FY17 if we have to achieve something like 11 percent nominal GDP growth then the GDP deflator has to be significantly positive. So, we expect this trend to settle in FY17 as well.Latha: I guess you got the gist of 7.6 percent GDP growth for the full year and 7.9 percent for the fourth quarter itself. Private final consumption doing well at 8.5 percent in constant terms GVA. Putting all this together as a bond trader should you worry about anything at all for trading tomorrow?Rajpal: Not really. If you really see markets are pretty range bound. As far as expectations are concerned market is not expecting any immediate rate cut. In fact we are not expecting any further rate cut. The focus is really on policy transmission, how much RBI increases liquidity and from that perspective I still expect the range bound markets to continue in the near term.Ekta: We closed the yield that is around 7.47 percent today. You don't expect much of movement tomorrow?Rajpal: As far as the number is stronger and if there are only marginal expectations in terms of any further monetary easing that may be taken out. So, probably we can move a little higher by one or two basis points. It is just not the local factors which is currently important. One needs to also realise that with every passing day we are getting closer to the FOMC meeting as well. So, from that perspective I expect quite a range bound kind of market. Ten year bond yields will broadly range trade in a 7.40 to 7.55 range over the coming couple of months and this data specifically is not a big trigger to break the range in either side.Ekta: Your first thoughts on the GDP growth which has come in at 7.9 percent for this particular quarter, for Q4 for FY16?Ghosh: We were expecting some sort of a bump up in the growth rate but the bottomline is that most of the bump up is because of the revision in the Q3 numbers. I do not know what is the revision in the Q3 GDP and the GVA numbers. I have a feeling that Q3 GVA numbers which was at 7.1 percent could have been revised downwards further. So, that means that the overall GVA growth rate is at 7.2 percent instead of 7.3 percent and there has been a significant bump up in the GDP estimates at 7.9 percent for Q4 so that the 7.6 percent net growth has been achieved. So, some sort of a bump up over there but if I remember correctly I think trade, hotels, transport and communication sector is holding up, I don't know the Q4 growth rate but Q3 was around 10 percent.Most of the indicators like the domestic passenger car sales, two wheeler sales, foreign tourist arrivals are now showing some signs of a bump up. The other good thing is that as the core sector data just revealed there is a bump up in the cement production and also steel production. So, that is going to have a positive impact on the construction sector.Manufacturing sector if you look into the CSO GVA number and the corporate sector GVA number, if you just juxtapose them, I think they are more or less in line.The other issue is always we have a disconnect between the IIP numbers and the GVA numbers. However there is an important trend over here that, if you look into the IIP numbers which has been trending downwards for the last couple of months but the net sales of the corporate are in fact going up.So, one possibility of that reconciling could be that there has been a drawdown of inventories which is exactly happening in the last couple of months. So, overall the picture looks positive and hopefully the next years GDP numbers could be at higher end of the governments estimates of 7.1-7.75 percent.Latha: In terms of key takeaways what will be the key takeaways for you?Ghosh: I agree with Pronab Sen regarding the divergence between the GVA and the GDP. I think last time we had such differences, I think the GVA was less than 7 percent and GDP was close to 8 percent, it was I think 3-4 quarters away.So, from that point of view it is a welcome departure that indicates that the improving fiscal situation of the government.The other good thing from that data is that growth rate in the agriculture. I think the agricultural sector growth rate is actually rebounded if I am correct to around more than 2 percent quarter on quarter and against all expectations Rabi output has been better than the kharif output. So, that is one good thing which has happened.Regarding the service sector I think the numbers are in line with expectations. The transportation sector is holding up and there are indications that demand is holding up. The defence sector has not lost growth rate and that is in line with the government's fiscal consolidation plan.So, overall the numbers are fine. Just a small point I would like to caution over here. Just looking through the numbers I saw that the GVA of Q3 which was at 7.1 percent has been as expected cut to 6.9 percent. So, that actually indicates why last quarter has been such rosy.With inputs from PTI