GST disruptions eat FY18 economic growth; GDP seen growing at 6.5%, lowest under Modi government
The economy is expected to grow at a four-year low of 6.5% in the current fiscal, the lowest under the Modi-led government, mainly due to the poor performance of agriculture and manufacturing sector, as against 7.1% in the last fiscal, the Central Statistics Office data on GDP advance estimate showed on Friday.
The practice of releasing advance GDP growth data began last year when the government shifted the Union Budget presentation to February 1 from the end of the February. For the fiscal year 2016-2017, the CSO estimated GDP growth at 7.1%, and the actual growth for the fiscal was also 7.1%. The GDP growth in 2015-16 was 8% and 2014-15 was 7.5%.
The growth of real Gross Value Added (GVA) in 2017-18 is anticipated at 6.1% as against 6.6% in the
previous year. As per the CSO data, the expansion in activities in ‘agriculture, forestry and fishing’ is likely to slow to 2.1% in the current fiscal from 4.9% in the preceding year. The growth in manufacturing sector too is expected to
decelerate to 4.6% this fiscal, down from 7.9% in 2016-17.
According to TCA Anant, with the introduction of the GST, sales tax data is subsumed under GST, had posed a logistical problem and so the same methodology was used to compute the Gross Value Addition (GVA) as in the second quarter.
He said that while the GDP growth for the second half of the fiscal year is pegged at 7%, the disruptions caused in the first quarter due to the GST destocking, which led to GDP growth at a three-year low of 5.7%, is impacting the full-year GDP estimates. However, he also said that the CSO has been conservative in calculating this data.
He said that the full-year projection of the GDP growth was made on the basis of the data available until November. As GST collections slipped to Rs 80,808 crore in November, down from an average of Rs 90,000 crore in the previous months and with government planning to borrow additional Rs 50,000 crore via gilts, which is double the amount that was estimated by the market, the GDP growth for the financial year 2017-2018 may range between just 6%-6.5%.
Noted economist Shankar Acharya told ET Now that since the GST shock is still continuing, the economic growth will be around 6%-6.5% in FY18, not above that. Recently, rating agency Fitch has cut India’s GDP growth forecast for the current fiscal to 6.7% from 6.9%.
In the second quarter (July-September), India made a comeback at 6.3% from a three-year low 5.7% in the previous quarter. However, massive rationalisation on as many as 178 products in November led to the fall in government’s revenue.
The fiscal deficit at the end of November breached the target and touched 112% of the budget estimate for 2017-18 mainly due to lower GST collections and higher expenditure. India’s GDP growth in the second quarter (Jul-Sep) accelerated to 6.3% from 5.7% in Apr-Jun and 6.1% in Jan-Mar.
According to Anis Chakravarty, Lead Economist, Deloitte, “For a broad-based recovery the rural economy needs to recover and we can expect the upcoming budget to focus on alleviating some of the stress in the rural economy and concentrating on measures to augment the flow of credit in the economy. Overall growth is likely to improve in the coming year and possibly move up beyond the 7% mark in FY19.”