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Decimal Digest
31 Aug 2012


Rocketing Government Expenditure Stabilizes India’s GDP

IIndia published its April-June quarter GDP numbers on Friday 31st August. Indian GDP grew by 5.5% per annum in this quarter. The table below shows the analytical breakup of key drivers of Indian GDP.

Table 1: Composition of Indian GDP growth for April-June 2012

Source: Decimal Point Analytics

The above table shows a tired Indian consumer, growing at sub-4% rate, and dismal Investment environment, with a 0.66% growth in investment demand. However, a 9% growth in government demand helped pull GDP growth rate to above 5%.

Depreciation to the tune of 20% in Indian Rupee (against USD) helped to show a 10% growth in exports (measured in Indian rupees) inspite of a slowing global economy. If the Rupee does not depreciate further, and global situation does not improve quickly, this item may not remain in positive territory for very long.

One can conclude that in order to show a GDP growth of above 5%, in the face of weak consumer and investment demand, the government will have keep expanding its expenditure at near double digit growth rates. How this affects attractiveness of Indian bonds and currency is clear to any student of economics.

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