The economy is likely to grow at a slower pace in the current financial year (2018-19, or FY19) than what was previously expected despite a significant rise in investment and manufacturing activities, showed the latest data released by the Central Statistics Office (CSO) on Monday.
Gross domestic product (GDP) is pegged to grow at 7.2 per cent in FY19, lower than the Reserve Bank of India’s (RBI’s) estimate of 7.4 per cent and the finance ministry’s projection of 7.5 per cent. However, it is higher than last year, when the economy grew at 6.7 per cent.
Based on the CSO’s first Advance Estimates, GDP growth is expected to dip sharply to 6.8 per cent in the second half (H2) of FY19 from 7.6 per cent in the first half (H1). By comparison, the RBI had pegged economic growth to average 7.2 to 7.3 per cent in H2FY19.
The finance ministry did not seem perturbed by these figures. “Very healthy advance GDP growth numbers for 2018-19. India remains fastest-growing major economy globally,” Economic Affairs Secretary Subhash Garg tweeted.
The International Monetary Fund (IMF) has projected China’s economic growth at 6.6 per cent in the current calendar year. The Advance Estimates are lower than the IMF projection of 7.4 per cent.
Nominal GDP (at current prices) though is expected to grow at a healthy 12.3 per cent in FY19, against the Union Budget’s assumption of 11.5 per cent. This implies that inflation is estimated to stand at 5.1 per cent. This rate is surprising since the consumer price index inflation has cooled to 2.3 per cent in November, with an average of 4 per cent in the first eight months of FY19.
Gross value added is projected to grow at 7 per cent in FY19, up from 6.5 per cent in 2017-18 (FY18).
Advance Estimates are released for the Budget-making exercise and are useful for calculating various ratios such as fiscal deficit and gross fixed capital formation (GCFC), among others. These are based on the actual data for six to eight months. The Budget is likely to be presented in the Lok Sabha on February 1.
Economists, however, advised caution with regard to these numbers.
SBI group chief economic advisor Soumya Kanti Ghosh termed advance estimates a conservative one. He said, “The estimate has a shelf-life of only two months.”
The second advance estimates are slated to come on February 28.
Ranen Banerjee, partner, PwC India, said, “The estimates seem to be on the conservative side and the final numbers would depend on three factors — how the oil prices, thus inflation, pan out; government spending in the last quarter before elections; and the mood of the economy after the conclusion of the US-China trade negotiations.”
On the production side, growth is expected to get a fillip from manufacturing and construction.
Manufacturing is expected to grow at 8.3 per cent in FY19, up from 5.7 per cent in FY18. Construction is projected to grow at 8.9 per cent this financial year, up from 5.7 per cent in the previous financial year.
However, manufacturing activity is expected to slow down sharply from 10.3 per cent in H1FY19 to 6.4 per cent in H2FY19. The construction sector is expected to grow at a faster pace, from 8.2 per cent in H1 to 9.5 per cent in H2.
In the services sector, the CSO expects trade, hotels, transport and communication services as well as public administration to grow at a slower pace in FY19, while financial, real estate, and professional services are expected to grow at a marginally faster pace.
Agriculture is projected to grow at 3.8 per cent in FY19, marginally higher than 3.4 per cent in FY18. However, this is susceptible to a downward shock, given that the rabi progress has not been very satisfactory, said Madan Sabnavis, chief economist at CARE Ratings.
On the expenditure side, the first Advance Estimate suggests a moderation in both private and government consumption expenditure.
Private final consumption expenditure is expected to slow marginally, from 6.6 per cent in FY18 to 6.4 per cent in FY19, while government consumption expenditure is expected to moderate to 9.2 per cent in FY19, down from 10.9 per cent in FY18.
However, investment activity is expected to pick up sharply. GFCF, which connotes investments, is expected to grow by a robust 12.2 per cent in FY19, up from 7.6 per cent in FY18.
Investment activity is expected to pick up in H2, with growth projected at 13 per cent — up from 11.25 per cent in H1.
As a percentage of GDP, GFCF is expected to rise to 29.5 per cent (at current prices) in FY19, up from 28.5 per cent last year.
“This is an interesting projection, as the same is not witnessed on the finance side or the new projects announced. The effort of the government must be the driving factor here. There could be a downward revision here and we expect the rate to be 29 per cent,” said Sabnavis.
*Estimates; Note: Private consumption expenditure denotes demand, and gross fixed capital formation shows investment | Source: CSO