THE GDP GROWTH PANGS

It’s not a pretty picture. India’s growth has slowed down. Manufacturing and agriculture are struggling, the government’s finances are stretched and tax collections are falling. Advance estimates by the Central Statistics Office put the GDP grow rate at 6.5 per cent in 2017-18, down from 7.1 per cent in the last fiscal and the lowest since fiscal 2015. Gross Value Added (GVA)—the value of goods and services produced—is projected at 6.1 per cent, down from 6.6 per cent in the last fiscal. Manufacturing growth is expected at 4.6 per cent against 7.9 per cent in the last fiscal, and agricultural growth at 2.1 per cent, compared to 4.9 per cent in the last fiscal.

Economists blame the slump on demonetisation, transitory disruptions caused by the Goods and Services Tax and poor agricultural growth. But the worst may be behind us. Aditi Nayar, principal economist at ICRA, explains that the advance estimates are based on limited data and do not factor in the expected pick-up in growth in the later months of fiscal 2018. ICRA expects the GDP to grow at 6.7 per cent. Crisil expects growth to rebound to 7.6 per cent in fiscal 2019 as GSTrelated issues get ironed out and consumption— helped along by softer interest rates, lower inflation and higher public spending with a rural focus—powers India’s growth. The Rs 2.11 lakh crore bank recapitalisation plan could enable banks to support growth.

Also encouraging is the uptick in volumes across sectors. Eight core industries grew by 6.8 per cent in November 2017, from 5 per cent the previous month. Core sector growth had plunged to 3.2 per cent in November 2016 after demonetisation.

The services sector is also expected to show sharp growth in the second half of financial 2018, riding on higher spending by state governments. Data for October-November 2017 shows a sharp increase in total expenditure, which will support services in the third quarter. But the limited fiscal room available with the government for additional spending in the fourth quarter could weigh down the sector’s growth.