GDP growth to hit four-year-low at 6.5%: Govt forecast

An estimate of 6.5 per cent GDP growth rate for the full year implies estimation of 7 per cent growth rate for October-March

Written by Aanchal Magazine | New Delhi | Updated: January 6, 2018 9:48 am
GDP, GDP low, Gross domestic product, GDP growth, Indian Economy, GDP Growth Estimate, 2018 GDP prediction, Indian Express The nominal GDP growth rate for 2017-18, estimated at 9.5 per cent, is also sharply lower than 11.75 per cent estimated in the Union Budget for this financial year.

The country’s gross domestic product (GDP) is estimated to grow at 6.5 per cent during 2017-18 — a four year low. Data released Friday by the Central Statistics Office (CSO) showed growth was lower than the 7.1 per cent GDP growth in the previous financial year on account of slowdown in the agricultural and manufacturing output. The advance estimate for Gross Value Added (GVA), the more closely watched indicator for growth, is estimated at 6.1 per cent for 2017-18, down from 6.6 per cent in the previous financial year.

While part of the blame for the slowdown, especially in the manufacturing sector, can be directed at the adverse impact of demonetisation and initial glitches in implementation of Goods and Services Tax (GST), the positives from the data is that both gross fixed capital formation — a proxy for investment — and private final consumption expenditure, despite inching down, are still holding.

Worrying still is the fact that the GVA advance estimate for 2017-18 is much lower than the GVA growth 6.7 per cent estimated by the Reserve Bank of India (RBI) for 2017-18. The nominal GDP growth rate for 2017-18, estimated at 9.5 per cent, is also sharply lower than 11.75 per cent estimated in the Union Budget for this financial year. As per the new methodology followed by the CSO, the GDP is calculated by adding product taxes to the GVA at basic prices and removing subsidies.

While the industry cited uptick in gross fixed capital formation as a sign of a turnaround in investments for sustained recovery to take hold, economists blamed the slowdown on the lingering impact of demonetisation and GST, which was introduced in July last year.

Sunil Kumar Sinha, Principal Economist, India Ratings & Research, said, “Instead of accelerating from 7.1 per cent (GDP growth witnessed in FY17), the GDP growth is likely to slip by 60 basis points in the current fiscal. The predominant narrative would be to attribute this slowdown to the adverse impact of demonetisation and implementation of GST. No doubt both these measures have had adverse impact on the GDP growth and were more pronounced in case of manufacturing sector. However, the encouraging feature is that gross fixed capital formation has shown some improvement and private final consumption expenditure, though lower, is still holding. Another component that supported the GDP growth from the demand side was Government Final Consumption Expenditure which grew 8.5% despite a very high base of FY17.”

The GDP growth rate, however, is expected to improve in the second half of this financial year, benefitting from a favourable base effect. An estimate of 6.5 per cent GDP growth rate for the full year implies estimation of 7 per cent growth rate for October-March, the second half of this financial year, given that the first half had clocked a GDP growth rate of 6 per cent.

The advance estimates for 2017-18 are based on economic indicators for the first seven or eight months of this financial year, such as Index of Industrial Production of first seven months of the financial year, financial performance of listed companies in the private corporate sector available up July-September quarter, first advance estimates of crop production, accounts of central and state governments, information on indicators like deposits and credits, passenger and freight earnings of railways, passengers and cargo handled by civil aviation, cargo handled at major sea ports, sales of commercial vehicles etc. available for first eight months of the financial year, the CSO said. The GST revenue data till November has been included for the GDP’s advance estimate compilation along with non-GST revenue, it said.

Chandrajit Banerjee, Director General, CII, said: “…It is heartening that gross fixed capital formation is on a recovery path, as a turnaround in investments is imperative for a sustained recovery to take hold.”

Anis Chakravarty, Lead Economist, Deloitte, said, “The estimate for yearly GDP shows that the growth momentum is expected to improve in the coming quarters, in line with expectations and signals from leading indicators. That said, the impact of reforms in the taxation space continues to linger while rural economic activity still remains subdued. The detailed print shows that manufacturing performance is likely to decelerate substantially from the previous year while there is some recovery in the mining and quarrying segment on the back of increases in some of their prices. There is likely to be an improvement in financial services growth as the impact of demonetisation continues to fade. On the demand side, growth is being supported by government expenditure as consumption is unlikely to pick up. Investment momentum is likely to remain muted and there seems to be some time before there is an investment recovery.”

The ‘agriculture, forestry and fishing’ sector is estimated to record a GVA growth of 2.1 per cent during 2017-18 as against 4.9 per cent in the previous year, while manufacturing growth is estimated to be 4.6 per cent this financial year, down from 7.9 per cent last year. GVA growth for ‘mining and quarrying’ sector is estimated at 2.9 per cent as compared to growth of 1.8 percent in 2016-17.

India Ratings’ Sinha said: “…accelerating the GDP growth from this level and maintaining it close to 8% will be a tough task even after the economy begins to reap the benefit of GST. The biggest clog in the wheel is the revival of private corporate investment. Despite the various effort being made which include resolution of stressed asset via IBC/NCLT, private corporate investment is unlikely to revive any time soon. Excess capacity in the manufacturing sector, coupled with stalled projects and banking sector NPAs for various reasons, will continue to be a drag on investment revival. Thus, GDP growth even in the coming years will improve only gradually, provided Indian economy does not witnesses more policy shocks.”

GVA growth for construction is estimated at 3.6 per cent in 2017-18, up from 1.7 per cent a year ago, while the GVA growth for the trade, hotels, transport and communication and services related to broadcasting services is estimated at 8.7 per cent during 2017-18 as against 7.8 per cent growth rate in the previous year, the CSO’s advance estimate showed. The GVA growth for ‘financial, insurance, real estate and professional services’ sector is estimated at 7.3 per cent this year as against 5.7 per cent last year.

Gross Fixed Capital Formation, an indicator for private investment, is estimated to grow at 29 per cent at constant prices during 2017-18 as against 29.5 per cent during the same period last year.

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  1. Hari Vel
    Jan 7, 2018 at 2:35 pm
    The present Government has embarked upon a Tight Money Policy and therefore the Growth is likely to be ed to that extent.Of late the emphasis is on Trading Activities and not Manufacturing Activities. For the Manufacturer the Profit of Margin is around 15 to 20 . The Trader on the other hand is looking at the turnover of his Capital which is converted into stock in trade and is very much concerned about rotating the same as many times as possibel during a given period of time. He is therefore content with a very low margin of Profit. With liberalization in the Manufacturing Mechanism we can expect a higher growth level. Liberalization should be on the free flow of Working Capital and installation of mass production Industrial Units with Liberal Term Loan Procedures. Only this initiative can increase the Industrial Growth Level and as a consequence the GDP. ------ S.V.R.Harivel
    1. Kushal Kumar
      Jan 6, 2018 at 10:29 am
      According to latest news reports in first week of January , 2018 , India’s GDP is estimated to grow at 6.5 during 2017-18 , a four year low. This estimated or feared circumstance in India’s economy is in line with the related predictions of this Vedic astrology writer in article - “ Astrologically speaking , some highlights for India in coming year year 2018” - published at theindiapost on 19 October , 2017. Just reproducing the text relevant to the point from the said article :- “ The year 2018 looks to be …………Economy may pass through tense times on more than one front except art , entertainment , cinema , creative or innovative talents which may do well to contribute whatsoever to the economy”. It seems these alerts for taking more care and appropriate strategy in 2018 in relation to economy in India are meaningful
      1. Rahul Roy
        Jan 6, 2018 at 10:03 am
        So despite all the effort to hike up GDP rates by a new calculation we now have the lowest growth in a decade. Feku and company take a bow! You truly have got the ache din here. Let’s hear another speech from your propoganda machine on mann ki baat. Go barking at how our terrorist neighbours ruined the economy. Go crying about black money you could n0t recover. Invent another slogan. And then make the GDP dip further. And when another soldier dies take credit away from his sacrifice by praising Feku again.
        1. Therealist Open
          Jan 6, 2018 at 9:07 am
          Modi and shah squandered their majority pandering to american corporate interests.Can bhaktas show me what exactly BJP have done with our taxes from 3.5 yrs?Because i see nothing.No improvement anywhere.Besides,most of ministers in this govt are functionally illiterate and do not understand economics.BJP's plan to sell country to corporations will not work as continuous riots and leftist movements will break out
          1. Designated Person
            Jan 6, 2018 at 9:24 am
            Absolutely right. I totally agreed with your thoughts.
            1. Anmol
              Jan 6, 2018 at 10:10 am
              Taxes have gone up, take for example service tax from 12.36 to 18 percent. Whereas the interest on small deposits have come down from 9.25 to 7.8 percent. As for BJP's plan to sell country to corporation is concerned, Modi will turn around a claim, "Is it happening for the first time ?? Earlier also country was sold". Very unfortunate.....
            2. Anmol
              Jan 6, 2018 at 8:49 am
              Dr. Manmohan Singh was correct when he had said "The worst is yet to come. Demonitisation was an organised loot." in December 2016.
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