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MOSL: ECOSCOPE-4QFY17 real GDP growth decelerates as expected-Without government consumption, real GDP growth was only 5.6% in FY17

​ECOSCOPE: 4QFY17 real GDP growth decelerates as expected; Without government consumption, real GDP growth was only 5.6% in FY17

• Although real GDP growth disappointed the markets, it made complete sense to us. India’s real gross domestic product (GDP) growth decelerated to 6.1% YoY in 4QFY17, much lower than market consensus of 7.1%, but in line with our estimate of 6.2%. Accordingly, real GDP grew 7.1% YoY for full-year FY17 – in line with our estimate of 7.2% and lower than market consensus of ~7.7%.
  
• Real GDP estimates are also in harmony with our proprietary monthly economic activity index (EAI), which showed growth of 6% in 4QFY17 – much lower than in previous quarters. As expected, the slowdown was broad-based. While private consumption grew at the slowest pace in five quarters, investments declined for the first time in three years.
  
• Further, real gross value added (GVA) grew 5.6% YoY in 4QFY17 – the slowest pace in three years. A record decline in the construction sector and deceleration in manufacturing activities dragged real GVA growth.
  
• FY17 was supported by government consumption, without which real GDP growth would have fallen to 5.6%, much lower than average growth of 7.2% for the previous four years. With fiscal policy reaching its limits and the external sector likely to deteriorate this year, we do not expect real GDP growth to pick up meaningfully in FY18.