Budget 2018: GDP growth to slump to 4-year-low is bad news for Modi government
India's gross domestic product (GDP) is expected to grow at 6.5 per cent this fiscal (2017-18) from 7.1 per cent last fiscal - a four-year low - according to the first advance estimates of the Central Statistics Office. The advance estimate for Gross Value Added (GVA) is estimated at 6.1 per cent for 2017-18, down from 6.6 per cent in the previous financial year.
The reasons for the lower GDP growth estimates is mainly due to slowdown in the agricultural and manufacturing output. Chief Statistician TCA Anant during a press conference on Friday said: "We are being conservative in our estimates." GVA provides the rupee value for the number of goods and services produced after deducting the cost of inputs and raw materials that go into the production of these goods and services against GDP, which is a key measure for a cross-country analysis and comparison with the incomes of different countries.
A sector-wise breakdown provided by the GVA measure also helps policymakers decide which sectors need incentives and stimulus or vice versa. GVA as such seems to be a better gauge of the economy because a sharp increase in the output only due to higher tax collections on account of better compliance or coverage as increasing effect of GST might add to, to some extent.
According to the CSO, sectors that are expected to grow at a higher pace in FY 2018 relative to the advance estimates include mining, quarrying, manufacturing, construction, trade hotels, financial, real estate and professional services.
The department has opined that the healthy turn around in volumes in November 2017 is expected to strengthen in the continuing residual part of the FY with manufacturing posting healthier expansion in the second half of the FY 2018 resulting in a substantial improvement in the capacity utilisation on a year on year basis. There is, however, a hunch that the increasing inflation in commodity prices, especially fuel prices might exert pressure on manufacturing margins and temper the expected improvement in GVA growth.
The picture on the harvest of the kharif crop and a relatively lower level of rabi sowing (on YoY basis compared to the year gone) coupled with a below normal post monsoon rainfall are also likely to have an adverse effect on the growth figures.
Although the overall consumer sentiment is yet to recover, the department has expected improvement both in the service and construction sectors in the second half of 2018 on an overall basis.
In addition, the period October-November 2017 had also witnessed a sharp increase in total expenditure which could be the real fillip in the service sector, though not much timeline is left to improvise the annualised averages as the year might close. Overall, the department expects GVA to end up at 6.1 per cent and GDP at 6.5 per cent.
The industry is expected to constitute 4.3 per cent against 4.9 per cent in the previous fiscal with agriculture registering a mere 2.1 per cent against 5.6 per cent of FY2017. Per capita income growth is envisaged at 8.3 per cent down from 9.7 per cent registered in the previous year.
A closer look at all the major components constituting these overall estimates indicate that the manufacturing, agricultural, defence and public administration sectors are in for a sizable annualised downfall with an upswing only in the trade, hotels, transport and communications and the financial sectors - the two other major sectors likely to post higher indices for GDV at 8.7 per cent and 7.3 per cent increase over the previous fiscal compared to 7.8 per cent and 5.7 per cent for the year before with construction and electricity sectors adding marginal increases.
According to the latest data released by the world bank too, India seems poised to step back on a growth mode in GDP but benchmarked against the highest achieved in 2010 (10.26 per cent), we are still far behind to catch up once again with the double-digit magical figure.
Perhaps the Budget 2018, and those to follow it, will address the mid-course corrections required to reposition the economic growth at its previous best momentum once again by prioritising provisioning of stimulus to the major sectors.