Modi government's job cut out as GDP estimate suggests economy set to slow down

The slowdown in the early quarters of this fiscal post note ban and GST launch are set to dent NDA government's track record of annual high growth figures. Due to the impact of GST replacing a slew of taxes on manufacturing, and the slowing growth of farm sector, India's economic growth is estimated to drop down to a new low of 6.5 per cent since NDA took charge. In comparison, the GDP was recorded at 7.1% in 2016-17, 8% in 2015-16, and 7.5% in 2014-15.

Releasing the advanced estimates of growth, Chief Statistician T C A Anant informed that the growth in all elements of the farm sector including forestry and fishing may slide to 2.1% compared to 4.9% last fiscal. "Because last year was a very high growth after continuous years of drought, there is certain amount of statistical base reversion to mean, which is seen," he added.

Anant informed that the growth in the gross value added (GVA) in manufacturing sector may also slow down from 7.9% in 2016-17 to 4.6% this fiscal. The chief statistician clarified, "When we did the first quarter estimates, we had explained that because of the fact that the GST is going to be implemented from July 1, there will be natural anticipation of GST by the manufacturing sector." The indication is that the slow down in manufacturing in first quarter was bringing the annual rate down.

The growth news may not be heartening but there's a silver lining. Economic Affairs Secretary Subhash Garg tweeted that the advance estimate indicates that the economy has done better in the second half of the fiscal than the first. The indication was that after the dip the upward climb has started.

GDP growth of 6.5% for 2017-18 implies growth of 7% for the second half. Confirms strong turnaround of economy. Investment growth of almost twice of last years indicate investment reviving.

- Subhash Chandra Garg (@SecretaryDEA) January 5, 2018

He further said, "Actual total production figure would be the second highest in very long period of time. This is not unusual growth rate of agriculture in a good year."

The Chief Statistician said calculating backwards if the second quarter recorded 6.3% growth and the one prior to that was 5.7% then for the remainder it could touch 7% and that indicates a consistency in the upward slide.

What's looking up

The government right since November 2016 has faced flak for note ban that impacted economic activities. The second disruptive exercise was GST, in July last year, which the opposition has been calling ill-conceived and hastily implemente.

Since the second quarter the government has been hoping that an upward trend would revive the economic activity. That's why today's advance indications may bring some cheer to the government.

A) The Gross Fixed Capital Formation (GFCF) at constant prices was pegged at Rs 37.65 lakh crore in 2017-18 against Rs 36.02 lakh crore in 2016-17 while current prices it stood at Rs 43.84 lakh crore in 2017-18 and Rs 41.18 lakh crore in 2016-17.

B) An over 7% growth was recorded in sectors like defence, public administration, trade, hotels, transport, communication and services related to broadcasting, electricity, gas, water supply and other utility services, financial, real estate, and professional services.

Now, all eyes will be on the release of the GDP and other data in the remaining quarters. If the glide path keeps moving northwards around 7%, the government in election mode during 2018 would have something serious to cheer about.