India reclaims ‘world’s fastest growing economy’ tag from China

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The Indian economy has regained its momentum, with the Central Statistical Office (CSO) reporting a GDP growth of 7.2% in the December quarter (Q3) of 2017-18—the fastest in five quarters.


  • This recovery was sparked by a revival in investment demand, registering a growth of 12%.
  • Based on Q3 GDP data, the full year’s growth has been revised upwards to 6.6%. If this GDP growth rate is realized, the size of the Indian economy is projected to grow to $2.6 trillion at the end of March
  • Not only does this signal that the Indian economy is tiding over the disruptions—triggered by demonetization of high-value currencies and rollout of the goods and services tax—but the latest quarterly corporate earnings data suggest that consumer demand too is reviving.
  • To achieve the 6.6% growth projection of the second advanced estimate, the Indian economy will have to grow at 7.1% in the last quarter, as against a growth of 6.5% in Q2 and 5.7% in Q1.
  • The Indian economy had expanded by 7.1% in 2016-17, 8.2% in 2015-16 and 7.4% in 2014-15.
  • The CSO had in its January projections estimated that the economy will grow at 6.5% in 2017-18 but has now marginally revised it upwards, though it is still lower than the 6.75% estimated by the Economic Survey.
  • Significantly, gross fixed capital formation—an indicator of investment demand in the economy—also registered a sharp increase of 12%. Private final consumption expenditure grew at 5.6% while government final consumption expenditure was up at 6.1%.
  • Madan Sabnavis, chief economist at Care Ratings, said the Indian economy should grow gradually to 7.5% in 2018-19. “Manufacturing has benefited in the third quarter from the restocking exercise post demonetization which is also evident in the IIP growth numbers which should be maintained,” he said in a note adding that the pickup in activity across sectors, supported by private consumption and gradual revival in investment could push India into the high growth trajectory.
  • In the quarter, agriculture grew at 4.1%, manufacturing at 8.1%, construction at 6.8%, trade, hotels, transport communication and services related to broadcasting at 9% and electricity, gas water supply & other utility services at 6.1%.
  • The finance ministry said in a statement that the robust growth in manufacturing and significant acceleration in construction mark a turnaround in the country’s economic growth momentum.
  • For the full year, gross value added (GVA) is expected to grow at 6.4% as against 7.1% in the year ago period. Agriculture will grow at 3%, manufacturing at 5.1%, trade, hotels and restaurants at 8.3% and construction at 4.3%.

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