What explains the spike in fourth-quarter GDP growth? It was Modi's hand at work

The government was the main driver behind the rise in January-March gross domestic product (GDP) growth to 7.7 per cent. In this period, the economy grew at the fastest pace in seven quarters and retained the tag of the fastest growing major economy.

Data released by the CSO a few days ago showed that GDP growth in the January-March quarter of 2017-18 was at a 7-quarter high of 7.7 per cent. Economic Affairs Secretary Subhash Chandra Garg said the GDP data indicated a turnaround in manufacturing and construction activity, as also pick up in private investments.

However, according to a report by HSBC, it was only "the hand of government" that lifted GDP growth. The report cited four key drivers for the rise in growth print—core GVA (gross value added), the public spending component of GVA, construction, and rise in central and state government fiscal deficits—as exports and private consumption disappointed.

As per the report, core GVA (GVA excluding public services and agriculture), which is a rough proxy for private sector growth, moderated slightly in the March quarter to 7.2 per cent versus 7.4 per cent last quarter and 4.1 per cent in the same quarter last year.

"The GDP print reinforces our view that much of the current uptick in growth is led by the government's push to construction and consumption," the HSBC report said.

While manufacturing and agricultural growth rose, exports and private consumption disappointed. "Even though global demand has been strong, India's export growth fell across every metric. Net exports shaved off 1.5 ppt from the growth number," it said.

According to HSBC, the public spending component of GVA and the government consumption component of GDP grew at a rapid pace, accounting for roughly one-fifth of overall growth. Moreover, construction and capital formation grew at double digits and public roads contracts awarded quadrupled in the March quarter. Besides, central government fiscal deficit for FY18 rose to 3.5 per cent, versus a budget estimate of 3.3 per cent and this has growth.