GDP growth seen slowing to 4 year low of 6.5% in 2017-18

GDP growth seen slowing to 4 year low of 6.5% in 2017-18

Context

The Central Statistics Office (CSO)’s GDP forecast

What has happened?

CSO has forecast that GDP growth in the current financial year ending March 31 will slow to a four-year low of 6.5%, from the provisional 7.1% pace seen in 2016-17, dragged down by deceleration in the agriculture and manufacturing sectors

Other forecasts

• Gross Value Added (GVA) was also projected to expand by 6.1% in 2017-18, slowing from 6.6% in the preceding fiscal year, according to the first advance estimates of national income for 2017-18, released by the CSO

Within this,

• The GVA growth rate for ‘agriculture, forestry and fishing’ is expected to slow sharply to 2.1%, compared with the previous year’s 4.9% pace
• Manufacturing sector growth has been forecast at 4.6% in 2017-18, compared with the 7.9% expansion provisionally estimated for 2016-17
• Quarrying & Mining: The CSO’s estimates project the mining and quarrying, and construction sectors to grow faster in 2017-18 than they did in the previous year. While mining and quarrying is estimated to expand by 2.9%, compared with 1.8% growth in 2016-17, the construction sector is expected to grow by 3.6%, versus1.7% in the prior period

Double digit growth

• The core sector data for November, the latest release so far, showed the steel and cement sectors registering strong double-digit growth

Base effect in agriculture

In agriculture, what we are seeing is a base effect because last year saw a very high growth rate because it followed two years of drought. In terms of production, the total production would probably be the second highest in a very long time. It is not unusual growth in agriculture in a good year

RBI’s forecast

• The CSO’s GVA full-year growth estimate of 6.1%, compares with a 6.7% pace that the Reserve Bank of India had forecast at its December policy meeting
• The central bank had at the time flagged rising oil prices and “shortfalls in kharif production and Rabi sowing” as posing downside risks to the outlook for GVA growth

Impact on fiscal deficit

For this year, the nominal growth is expected to be far lower than what was estimated in the Budget, so the fiscal deficit number will have to be adjusted if the 3.2% of GDP target is to be maintained. And, for next year, the base is now lower, so that year’s fiscal deficit figure will also have to be adjusted

More robust GDP in 2018-19

Economic activity has been picking up over the last three quarters and can be expected to strengthen in the coming period with the manufacturing PMI [Purchasing Managers’ Index] now reading at a five-year high of 54, and FMCG demand picking up briskly,” Vice Chairman of NITI Aayog Rajiv Kumar said in a written statement. “Hence, the GDP growth will become more robust in 2018-19

Gross Fixed Capital Formation

Gross fixed capital formation — a key investment metric — is expected to accelerate to 4.5%, from 2.4% in 2016-17

Growth rates of various sectors

• Growth in the trade, hotels, transport and communication and services related to broadcasting is estimated at 8.7%, quickening from 7.8% in the previous year
• Similarly, the financial, insurance, real estate and professional services sector is estimated to expand faster at 7.3% in 2017-18, from 2016-17’s 5.7% pace
• However, the public administration and defence and other services category is expected to grow at 9.4% in 2017-18 compared with 11.3% in 2016-17