Economic growth set to hit 4yr low

AT 6.5% Agriculture, manufacturing sectors bear the brunt in current fiscal

The Indian economy is expected to expand at 6.5% in 2017-18, the slowest pace in four years, although the first advance estimates released by the Central Statistics Office indicates that the economy may be on the path of recovery and faster growth.

In the first six months of the year, between April 1, 2017 and September 30, 2017, the economy expanded by 6%, which means it is expected to grow by 7% in the second half of the year.

Economic affairs secretary Subhash Chandra Garg tweeted to the same effect: “GDP growth of 6.5% for 2017-18 implies growth of 7% for the second half. Confirms strong turnaround of the economy. Investment growth of almost twice of last year’s indicate investment reviving.”

This is the lowest growth seen in any year since the government took charge in May 2014.

Demonetisation of high-value notes in November 2016 disrupted supply chains in the informal economy, affecting growth in the first few months of the financial year, the move to a new indirect tax regime under the unified goods and services tax, and the teething trouble associated with this, including delays in refunds to exporters, may have resulted in a temporary dip in manufacturing.

At least one expert said the estimate may be too bullish.

Former chairman of the National Statistical Commission Pronab Sen said though the 6.5% GDP growth may be an over-estimation based on growth rate in indirect taxes assumed in the budget. “The buoyancy in indirect taxes including GST is unlikely to be that high as assumed in the Budget. GDP growth for FY18 may settle down at 6.3%,” he added.

However, Aditi Nayar, principal economist at ICRA Ltd said since the advance estimates for the full year have been based on limited data for different sectors, they are not fully factoring in the expected pickup in growth in the later months of 2017-18, related to a favourable base effect.

She said her firm expects GDP growth in 2017-18 to be 6.7%, “higher than the advance estimate” of 6.5% released on Friday.

Indeed, the CSO’s 6.5% estimate assumes a Gross Value Added of 6.1%, lower than 6.7% growth projected by the Reserve Bank of India in its latest bi-monthly monetary policy review on 6 December. The Gross Value Added is the GDP less net taxes.

The nominal GDP, or gross domestic product at market prices, is expected to grow at 9.5% against 11.75% assumed in the 2017-18 budget presented last year. The nominal GDP will be used as the benchmark for most indices in Union Budget 2018 to be presented by finance minister Arun Jaitley on 1 February.

Chief Statistician of India TCA Ananth said the lower than anticipated nominal GDP growth will lead to “marginal slippage” in the fiscal deficit target for 2017-18 from 3.24% of GDP estimated in the budget to 3.29% assuming government borrows what it budgeted for the year.