January 23, 2018

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GDP growth estimated at 6.5%

06 January 2018

Data released by the Central Statistical Organisation (CSO) on Friday showed the economy is estimated to grow 6.5% in 2017-18, slower than the 7.1% in 2016-17 and lower than the government's estimate of 7.5%.

India's growth rate may accelerate this year to reach 7 per cent in 2018-19 and 7.6 per cent by 2019-20 as key sectors would revive from disruptions related to the goods and services tax (GST) and demonetisation, according to a research note by global financial services firm HSBC.

Anis Chakravarty, Lead Economist, Deloitte, said the estimate for yearly GDP showed that the growth momentum was expected to improve in the coming quarters in line with expectations and signals from leading indicators. Companies have considerably scaled up production and restocked supplies after goods and services tax (GST) kicked in from July 1. "GDP growth of 6.5% for 2017-18 implies growth of 7% for the second half", economic affairs secretary Subhash Chandra Garg tweeted.

"In a way, we are being conservative in our estimates", he said, and added that the statistics office has estimated the numbers assuming that budgetary targets will be met. Growth is below the government's early estimate.

The International Monetary Fund (IMF) expects India's GDP to grow at 6.7 per cent in 2017-18. "No doubt both these measures have had an adverse impact on GDP growth and were more pronounced in case of the manufacturing sector", said Sunil Kumar Sinha, principal economist, Ind-Ra.

The government estimated that gross value added (GVA), which is GDP minus net taxes, will grow at 6.1 percent in 2017-18.

As per the data, the Gross Value Added (GVA) at basic constant prices (2011-12) is anticipated to increase from Rs 111.85 lakh crore in 2016-17 to Rs 118.71 lakh crore in 2017-18. In Union Budget 2017, the finance ministry had assumed nominal GDP of Rs168.5 trillion at 11.75% growth rate. This may make it hard for the government to achieve the fiscal deficit target of 3.2% of GDP in a fiscally tight year.

This may affect the fiscal deficit, which the government had hoped to cap at Rs 5.46 lakh crore this year.

The CSO has primarily used seven-month data to extrapolate for the full fiscal.

Debroy said that several indicators had already shown signs of improvement, "whether it is the PMI (Purchasing Managersa¿ Index), the high growth in eight core-sector industries or data on auto sales".

"Since these estimates are based on data till November 2017, it has not captured the latest up-tick in the vehicle sales and the improvement in the steel and cement sectors; we expect the final numbers to be revised upwards as and when they happen", said Arun Thukral, Managing Director and CEO, Axis Securities.

GDP growth estimated at 6.5%