Mid-year review likely to lower growth forecast on Friday

The mid-year economic analysis for 2015-16, which is being prepared by Chief Economic Advisor Arvind Subramanian and his team, will be introduced in Parliament by finance minister Arun Jaitley on Friday.

In the analysis, the government is likely to sharply cut its earlier gross domestic product (GDP) growth forecast of 8.1-8.5 per cent to 7.3-7.77 per cent, owing to laggard growth numbers in the April-June quarter, sources told Business Standard.

GDP growth for April-June was a modest seven per cent, compared to the January-March quarter of 2014-15.

The July-September quarter GDP data, released on November 30, showed growth accelerated to 7.4 per cent, prompting the finance ministry to come out with a statement that official GDP growth estimates would be revised downwards to 7.5 per cent.

In the first half of FY16, GDP grew 7.2 per cent, compared to 7.5 per cent in the year-ago period.

The expected growth forecast in the mid-year review will be closer to estimates by various ratings agencies and multilateral institutions. The Reserve Bank of India, too, had in September lowered its GDP growth forecast to 7.4 per cent from the earlier 7.6 per cent.

"The earlier official estimates of 8.1-8.5 per cent will be lowered. There have been a number of factors like deficient monsoon, low private consumption generally and rural consumption specifically, and slowdown in agriculture," said a senior government official.

According to the Fiscal Responsibility and Budget Management Act, a mid-year review examines the trends in receipts and expenditure for the first two quarters of a financial year in relation to the Budget and provides a statement explaining deviations in meeting the government's fiscal obligations.

In the mid-year analysis of 2014-15, tabled on December 19, 2014, Subramanian had warned the year would see a revenue shortfall of Rs 1.05 lakh crore and lead to massive expenditure cuts across the board.

For April-October 2015, the Centre's capital expenditure was Rs 1.43 lakh crore, the highest ever for the same period in any year, and higher than the April-October 2014-15 capital expenditure by 31 per cent.

When the review for FY16 is presented five days from now, it is likely to reflect the benefits of low crude oil prices and the savings on subsidies, as well as the ramping-up of the Direct Benefits transfer system in foodgrain and liquid petroleum gas.

When the Budget for the current financial year was being prepared, oil was $70 a barrel.

It is now around $40.

The review will also reflect an expected Rs 50,000-crore shortfall in direct tax revenue budgeted estimates, as already announced by revenue secretary Hasmukh Adhia, and a massive shortfall in the budgeted disinvestment target of Rs 69,500 crore.

On the other hand, indirect tax revenues have been boosted because of additional duties on petrol and diesel and higher service tax. Indirect tax collections for April-November were Rs 4.38 lakh crore, 34 per cent higher than the same period last year.

WHAT'S IN STORE

• Report to lower govt's official GDP growth forecast of 8.1-8.5%
   
• Forecast might be lowered to 7.3-7.7%
   
• Q1 GDP growth was 7%, Q2 GDP was 7.4%
   
• Mid-year analysis to reflect higher than expected indirect tax collections
   
• To also show lower-than-anticipated disinvestment collections
   
• To reflect benefits from low oil prices on subsidy spending