India's GDP decelerates in Q1FY16

India's gross domestic product (GDP) growth stood at 7 per cent in Q1FY16 while it was 7.5 per cent in Q4FY15. The decline in the GDP in June 2015 quarter was mainly because of sluggish domestic and foreign demand. The country witnessed low investment in the June quarter. Although the government is spending  on capital to boost GDP.

The GDP growth was 6.7 per cent in Q1FY15. The government set target of 8.1 to 8.5 per cent growth in GDP for FY16. As numbers of GDP declined the target will likely to skip in the current fiscal year. Recently, rating agency Moody’s cut India’s growth forecast for 2015-16 from 7.5 per cent to 7 per cent due to lower than expected rainfall. Fitch also cut its India real GDP growth forecasts to 7.8 per cent for FY16 from 8 per cent and forecast to 8.1 per cent for FY17 from 8.3 per cent.

The GDP at gross value added (GVA), a key measure that measures growth byvalue of goods and services produced in an area, industry or sector of an economy. According to a new methodology, GDP is calculated as GVA plus indirect taxes, excluding subsidies. The GVA  contributing agriculture, industry and services  stood at 7.1 per cent against 7.4 per cent on yearly basis.

The growth in the sector’s primary segment, manufacturing, declined to 7.2 per cent from 8.4 per cent in the previous quarter. Electricity growth decreased to 3.2 per cent from 4.2 per cent in the previous quarter. However, the country's industrial growth increased to 6.5 per cent in Q1FY16 from 5.6 per cent in the previous quarter.

The service sector contributes almost half of India's GDP. The service sector growth slowed to 8.9 per cent in Q1FY16 from 9.2 per cent compared to previous quarter. The growth stuck in the June 2015 quarter as huge non-performing assets and lack of demand for credit due to low investment, financial services and allied sectors expanded at 8.9 per cent, against 10.2 per cent in the Q4FY15.

The agriculture sector posted better than expected growth of 1.9 per cent in Q1FY16, against 1.4 per cent contraction in the previous quarter. This was because the GVA of livestock, forestry and fisheries, accounting for 41 per cent of the primary sector, expanded a 6 per cent in Q1FY16.

The government’s capital expenditure increased 18 per cent in Q1FY16. Though the government expenditure accounts for a very small part of overall capital formation. From total capital expenditure of Rs 9 lakh crore, government expenditure is about Rs 58609 crore and the rest is accounted by the private sector, public sector undertakings, states & households. The government’s final consumption expenditure increased 1.1 per cent in Q1FY16, against a decline of 7.9 per cent in Q4FY15. The government is looking at increasing spending  to boost domestic demand.