GDP Effects

by Pradeep choudhary

Posted on 06-January-2018 9:16:30 AM    0 Comments    1955 view(s)

‘Slowest GDP growth in 4 years not a big worry as investment growth rate at almost twice of last year’s indicates sentiment picking up’
Growth expected to accelerate to 7% in H2 after a slow start in H1 on DeMo, GST effects

Our Bureau

New Delhi: The Indian economy is forecast to grow at its slowest in four years in FY18 but is expected to pick up pace in the second half of the year.

GDP is seen growing 6.5% in FY18, down from 7.1% last year, according to the first advance estimates released by the statistics office on Friday. Gross value added (GVA) growth is forecast at 6.1% against 6.6% last year.

In the first half, GDP growth was only 6% because of the disruption caused by the goods and services tax (GST) and the lingering impact of demonetisation.

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

Chief statistician TCA Anant echoed those sentiments.

“Effectively, we are calculating the H2 growth in the economy at around 7%... maintain the trend of increasing growth.”

He added that manufacturing estimates included GST impact during the initial quarters. GST was imposed on July 1last year.

‘We are Being Conservative in Estimates’

“In a way, we are being conservative in our estimates,” he said, and added that the statistics office has estimated the numbers assuming that budgetary targets will be met.

Growth is below the government’s early estimate. The second instalment of the Economic Survey released in August last year had seen growth at the lower end of the 6.75-7.5% range forecast in February.

The lower growth will raise pressure on finance minister Arun Jaitley ahead of theFebruary 1 budget to take steps to strengthen recovery even as he allocates more funds for key stakeholders ahead of elections next year.

The Reserve Bank of India is unlikely to cut rates, with retail inflation climbing to a 15-month high of 4.88% in November. RBI had forecast a higher GVA growthof 6.7%. Nettaxeson products are added to GVA to arrive at GDP. GVA growth is expected to decline to a three-year low of 6.1% in FY18. GDP growth will become more robust in FY19, according to NITI Aayog vice chairman Rajiv Kumar.

Economic activity has been picking up over the last three quarters and can be expected to strengthen in the coming period with manufacturing PMI at a five-year high and demand for fast-moving consumer goods (FMCG) picking up briskly, he said. The estimates assume significance in the wake of the fact that the higher second-half growth has come despite a waning of public sector expenditure, which had peaked in FY17 on account of the implementation of the recommendations of the Seventh Pay Commission.

UPWARD REVISION LIKELY

Industry and experts expect growth to be revised upward.

The forecastfactors in data up to November. Subsequent data – core sector, purchasing managers’ index (PMI), and vehicle sales – have been upbeat, corroborating the second-half recovery estimated in the number released.

India's per capita income, a gauge for measuring living standard, is likely to rise to ₹1.11lakh in FY18 but the growth would be slower at 8.3% compared with 9.7% growth in 2016-17.

The advanceestimates “are not fully factoring in the expected pickup in growth in the later monthsof FY18, relatedto a favourable base effect and a 'catchup' following the subdued growth momentum in H1 FY18,” said Aditi Nayar, principal economist, ICRA.

ICRA expects GVA growth to reach 7.5% in the last quarter of the fiscal and full-year GDP growth of 6.7%, higher than these first estimates.

“Whilethis givesthe impression of a downturn, in reality, growth has bottomedout in thefirst quarter of the current year and is now on a recovery,” the Confederation of Indian Industry (CII) said in a release. “It is possible that this number will be revised up once more data is available for the third and fourth quarter of the year.”Investments are set to rec over with gross fixed capital formation expected to grow 4.5% in FY18 from 2.4% in FY17.

Demonetisation in November 2016 and the imposition of GST last year have dented spending with private expenditure growth expected to slow to 6.3% in the current fiscal from 8.7% last year.

“The two reform measures which were expected to formalise the economy have led to a fall in growth in the short term,” said Devendra Kumar Pant, chief economist at India Ratings. “However, green shoots in investment are visible and they should be nurtured by supportive policies.”The lower demand has dented manufacturing that will grow 4.6% this year against 7.9% last year. Agriculture will slow to 2.1% from 4.9%. Construction will see a slight pickup to 3.6% from 1.7%.