Expect GDP to grow by 7.4% in FY15: Kotak Securities

Kotak Securities' report on GDP

Following the revised base and changed methodology release in January, CSO has released Advanced Estimates for FY15 GDP growth and Q3 number. Based on improved methodology and wider data sources, CSO estimates GDP growth in FY15 to be at 7.4% (India would likely become the fastest growing large economy in the world, surpassing China). However, nominal GDP growth is estimated to grow at slower pace. Nominal GDP growth is estimated at 11.5% vs. 13.6% in FY14 and 13.1% in FY13. This is mainly on account of lower inflationary pressures reflected in lower GDP deflator. While growth estimates were earlier computed using 'factor cost' approach, the new method is based on value addition (net of impact of indirect taxes and subsidies) in conformity with international standards. The main difference is that, in the earlier method, level of production was measured, while now value addition (production - cost) is measured i.e. if the cost of production comes down and even if the level of production remains same, we would have increased value add, hence higher GDP. Table 1 (In the attached psf), indicates the changes in quarterly estimates due to change in methodology and base year. Quarterly GDP estimates from Q2FY13 to Q4FY14 have been revised lower but, Q1FY15 onwards, GDP estimates are revised higher. CSO now estimates nominal GDP in FY15 to be at Rs.126 trillion as against estimate of Rs.128 trillion in budget. These estimates are used for Budget calculations. The downward revision in nominal GDP estimates may make it relatively tougher for the Government to achieve the fiscal deficit target of 4.1% for 2014-15", says Kotak Securities research report.

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