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Backed by government spending and investment, the economy grew at a seven-quarter high of 7.7 per cent in January-March. But this did not prevent GDP growth, at 6.7 per cent in 2017-18, from falling to its lowest rate in four years of the Narendra Modi government.

The fourth-quarter growth rate prompted the finance ministry to say the economy would clock 7.5 per cent growth in 2018-19, the upper range of growth projected by the Economic Survey.

The growth rate for 2017-18 was higher than the government's first and second advance estimates — at 6.5 per cent and 6.6 per cent — and in sync with what the International Monetary Fund, the World Bank and the Economic Survey had estimated. This is the last piece of macroeconomic data before the Reserve Bank of India reviews the monetary policy in June. 

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The 9.1 per cent growth rate of net indirect taxes (taxes less of subsidies) took GDP ahead of the gross value added (GVA) at basic prices, which stood at 6.5 per cent during the fiscal year, against 7.1 per cent a year ago.

The growth rate for the third quarter was revised to 7 per cent from 7.2 per cent, and that for the second quarter to 6.3 per cent from 6.5 per cent estimated earlier.

"GDP growth has been increasing continuously every quarter. This shows the economy is on the right track and is set for even higher growth in the future," Finance Minister Piyush Goyal said. 

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Economic Affairs Secretary Subhash Chandra Garg said the government was not lowering its 2018-19 growth forecast of 7.5 per cent.

Besides a sharp spike in investment activity and public spending, the low base effect of 6.1 per cent growth in the corresponding quarter due to demonetisation may have pushed up the growth rate in the fourth quarter of 2017-18.

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Garg said he did not see any correlation between oil prices and GDP growth, and the fiscal deficit would remain within target.

Investment activity, a proxy for gross fixed capital formation, posted 14 per cent growth, the highest in several quarters, compared to 9 per cent, year on year, in the previous quarter.

"The 9 per cent growth rate for capital goods and the expansion in the government's capital spending in January-February led to the healthy expansion of gross fixed capital formation in the quarter," said Aditi Nayar, principal economist, ICRA. 
 

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That it was largely led by the government's infrastructure push is indicated by the fact that the construction sector growth recovered to 11.5 per cent during the fourth quarter, against 6.6 per cent in the third quarter, and 3.1 per cent in the second.

Led by manufacturing and construction, growth in all sectors, except for services, speeded up sequentially in the fourth quarter.
 

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Nayar said the revival in investment activity was not broadbased because fresh capacity was being added by companies only in a few sectors. "Other indicators offered differing trends, such as the 7.1 per cent contraction observed in the capital spending of a sample of 10 state governments (Chhattisgarh, Gujarat, Haryana, Kerala, Odisha, Punjab, Rajasthan, Telangana, Tamil Nadu and Uttar Pradesh) in the fourth quarter of 2017-18. Moreover, the value of new projects and completed projects contracted on a year-on-year basis in during the quarter," she added.

Government spending growth, shown by public administration, defence and other Services touched 13.3 per cent, against 7.7 per cent in the previous quarter.

The fiscal deficit target for 2017-18 was revised to 3.5 per cent of GDP from 3.2 per cent due to lower-than-expected revenue from the GST that was rolled out from July 1, and less-than-anticipated dividend from the Reserve Bank of India.

GST collections in the first nine months after the roll-out stood at Rs 7.41 trillion, where the average monthly collections turned out to be lower than the initial targets set by the government.

Sound macroeconomic management by the government was boosting growth and investment in India, said Bibek Debroy, chairman of the Economic Advisory Council to the Prime Minister.

With the banking sector weighed down by rising non-performing assets (NPAs), 11 public sector lenders were put under the Reserve Bank of India's Prompt Corrective Action (PCA) framework. This led to a 5 per cent decline in the financial sector and allied services in the fourth quarter against 6.9 per cent in the previous quarter. Trade and hotel services growth also declined to 6.8 per cent, from 8.5 per cent in the same period a year ago.

The manufacturing sector grew 9.1 per cent during the fourth quarter, against 8.5 per cent in the third quarter, suggesting that companies had adjusted well to the GST after the 1.8 per cent contraction recorded in the first quarter of 2017-18 during the transition to the GST.

Mining activity posted growth of 2.1 per cent in the fourth quarter, up from 1.4 per cent in the previous quarter.

Private final consumption expenditure growth, an indication of domestic demand, grew 6.6 per cent in the fourth quarter, against 7.3 per cent in the third quarter.

The government had originally forecast GDP growth for the fiscal year in the range of 6.75-7.5 per cent, but later said the lower band looked more realistic.

Agriculture growth rose to 4.5 per cent in the fourth quarter, the highest quarterly growth in 2017-18, from 3.1 per cent in the previous quarter.

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