Is GDP growth losing steam or gaining momentum?

NEWS ON India’s economicgrowth front continued to disappoint as the Central Statistics Office released the first Advance Estimates for gross domestic product (GDP) growth for FY18. As Chart 1 details, growth in both GDP as well as gross value added (GVA) is expected to decelerate to their lowest levels since the last general elections. This is crucial, since higher economic growth was one of the key electoral concerns. By the look of it, it is likely to remain so, as India awaits another election in just over a year.

Chart 2 provides a sectoral break-up of the growth slowdown. For the current financial year, the data suggests both agriculture and manufacturing are likely to witness a sharp deceleration. Over the past four financial years, apart from some concerns over these two sectors, mining, construction, and a whole host of financial, real estate and professional services have lost momentum.

Chart 3 looks at the growth calculation from the expenditure side. The shift here is the growth of private final consumption expenditure (PFCE) and government final consumption expenditure (GFCE), both of which contributed most handsomely in FY17, has decelerated sharply. The other key variable, gross fixed capital formation (GFCF), however, jumped over the past year. However, the rebound in GFCF appears to be more of a statistical illusion since, as a percentage of GDP, it has continued to fall over the years.

A key concern, given the lower than expected growth, is the adverse impact on fiscal deficit. However, as chart 4 shows, if the actual fiscal deficit stays what it was budgeted to be, then the fall in nominal growth would only lead to a slippage of five basis points.