Growth numbers do not inspire optimism

Q3GDP numbers came in at 6.6 per cent, mostly in line with market consensus. However, with FY19 growth now at 7%, Q4GDP numbers are at 6.5 per cent. With Q4FY18 revisions due in May, it is likely that Q4 numbers could be even at sub 6.5 per cent.

The spate of data revisions in the quarterly GDP numbers for FY17 and FY18 now reveal a prolonged hiatus in growth since Q1FY17.  For example, Q1GDP growth in FY17 was at 9.2 per cent and have progressively declined since then (barring a brief upturn during Q2FY18 till Q4FY18). Interestingly, growth has declined sharply from 9.2 per cent peak to 6 per cent in Q1FY18. Also, the significant volatility in GDP numbers during FY17 and FY18 is difficult to reconcile and it will be better if CSO comes out a detailed advisory of such difference in estimates.

The latest data print reveal that the pain in the rural sector is far from over. Real Agri GVA is now showing a de-growth in Q4, even as the growth in Agri deflator has turned positive after two successive quarters. The degrowth in projected real Agri GVA in Q4 reveals that the area under rabi showing must have declined. However, the growth in Agri deflator in Q4 could possibly be explained by a lower base as MSP of most crops are still trending under the Market prices, though there has been some improvement in prices for coarse cereals and oilseeds for select categories. Nominal Agri GVA growth is supposed to slow down to 1.5 per cent in Q4, the lowest since Q1FY18. In contrast, the nominal growth in both Industry and Services are more than 12 per cent, indicating the growth dichotomy between agri and non-agri GVA. Agri NPA on bank balancesheets also remain elevated, reflecting problem of loan waivers.

To address this price deficiency and declining farm income, the Government in 2019-20 Budget provided an income support scheme. However, identifying the beneficiaries, and transferring the amount to all farmers by March’19 remains a challenge. According to the latest data, 204,000 villages (33 per cent), of 655,000 villages are linked with banks.

The good thing is that Core GVA, a proxy for private sector activities expanded at 7.1 per cent in Q3, nearly unchanged from the previous quarter. But Q4 numbers are showing a marginal dip. The construction sector comprising construction of buildings, roads and railways and other minor construction activity (NIC 2008 Industry divisions 4,142,43) have shown an impressive recovery in FY19. The growth rate has recovered from lows of 3.6 per cent to 8.9 per cent in FY19. The trend shows the recovery is not knee-jerk but gradual and consistent. The construction activity in part has recovered due to massive thrust to rural housing under PMAY.

The expenditure side figures show a puzzling trend under the head ‘discrepancy’. The share of discrepancy in the GDP which was of the order of 0.15% of in FY15 has increased to 2.8 per cent of GDP in FY18 and 1.9 per cent in FY19. This jump warrants some explanation, though investment is holding up.

Overall, growth challenges remain. A deeper analysis of sectoral data indicates that the credit off-take which crossed Rs 2 trillion mark in Sep’18 and Rs 1 trillion mark in Nov’18 decelerated thereof, despite marginal improvement in credit to MSME.

Writer is Group Chief Economic Advisor, State Bank of India. Views are personal.