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Explained: Why even the govt expects India’s GDP to grow at 5% this year

The most disappointing number is the deceleration in business investments in the economy. This driver, which is the key to sustainable long-term growth, grew by less than 1 per cent; last financial year it grew by 10 per cent.

Written by Udit Misra , Edited by Explained Desk | New Delhi | Updated: January 8, 2020 9:20:27 am
The gross value added (GVA), which maps the economic activity from the income side as against the GDP which maps it from the expenditure side, is expected to grow by 4.9 per cent in 2019-20 as against 6.6 per cent in 2018-19.

According to the data released by the Ministry of Statistics and Programme Implementation (MoSPI), India’s gross domestic product will grow by just 5 per cent in the current financial year (2019-20). Last financial year, 2018-19, the Indian economy grew at 6.8 per cent.

The gross value added (GVA), which maps the economic activity from the income side as against the GDP which maps it from the expenditure side, is expected to grow by 4.9 per cent in 2019-20 as against 6.6 per cent in 2018-19.

What are the First Advance Estimates and what is their significance?

The First Advance Estimates (FAE) released on Tuesday evening extrapolate a variety of data, such as the Index of Industrial Production, the financial performance of listed companies, first advance estimates of crop production etc., for the first 7 to 8 months to arrive at the annual figure. The significance of the FAE is that this is the final bit of official data before the government presents its next Budget.

The press release states “The approach for compiling the Advance Estimates is based on Benchmark-Indicator method. The sector-wise Estimates are obtained by extrapolation of indicators like (i) Index of Industrial Production (IIP) of first 7 months of the financial year, (ii) financial performance of Listed Companies in the Private Corporate sector available upto quarter ending September, 2019 (iii) 1st Advance Estimates of Crop production, (iv) accounts of Central & State Governments, information on indicators like Deposits & 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 8 months of the financial year”.

Explained: The nominal GDP worry

What happened to the main drivers of the GDP?

There are four main drivers of the GDP. One, the private consumption expenditure – that is the expenditure that you and I make in our personal capacity. This category has grown by just 5.7 per cent in 2019-20 while it grew by 8 per cent last financial year.

The second driver is the expenditure made by the Government. This grew by 10.5 per cent, which is higher than the rate of growth (9.2 per cent) in the last financial year.

But the most disappointing number is the deceleration in business investments in the economy. This driver, which is the key to sustainable long-term growth, grew by less than 1 per cent; last financial year it grew by 10 per cent.

This shows that while the private consumption demand is tepid, businesses have completely turned off the tap on new investments despite the government making a once-in-generation cut in corporate taxes.

In terms of GVA, which sectors of the economy performed well and which sectors under-performed?

The GVA data provides a detailed picture. Given that the overall GVA has decelerated sharply, almost all sectors have witnessed slower growth in economic activity. Only “Public Administration, Defence and Other Services,“ which essentially measures how the government did, grew by 9.1 per cent. All other sectors saw a GVA growth that was slower than the average growth in the last financial year.

Even so, the sectors which registered growth rate of over 4.9 per cent are, ‘Electricity, Gas, Water Supply and Other Utility Services’, ‘Trade, Hotels, Transport, Communication and Services related to Broadcasting’, ‘Financial, Real Estate and Professional Services’; they grew at 5.4 per cent, 5.9 per cent, 6.4 per cent, respectively.

The worst performing sectors are ‘Agriculture, Forestry and Fishing’, ‘Mining and Quarrying’, ‘Manufacturing’ and ‘Construction’, which are expected to see a GVA growth of 2.8 per cent, 1.5 per cent, 2.0 per cent and 3.2 per cent respectively.

Also Read | How and why the Indian economy is losing its growth momentum 

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