Published: Fri, January 10, 2020
Markets | By Otis Pena

Growth estimate subdued, can force fiscal stimulus in Budget

Growth estimate subdued, can force fiscal stimulus in Budget

GDP growth stood at 4.8 per cent for the first half of the current fiscal year.

In the wake economic slump which saw GDP cracking down to 6-year low of 4.5% for the quarter ended September, it is really a hard task to come out with its estimates. Ficci President Sangita Reddy said that with the advance GDP estimates projecting the current fiscal's GDP growth at 5 per cent, it is a necessity now for the government to look at measures to infuse capital into the economy in a systematic way.

For 2018-19, the first advance estimates had pegged the GDP growth at 7.2 per cent which was brought down to 7 per cent in the second advance estimates and was further pared down to 6.8 per cent in the actual number. India needs to grow at around 8 per cent a year to reach the goal of a $5 trillion dollar economy by 2025. Excluding public administration, defence and other services, which largely connotes government spending, gross value added by the rest of the economy is projected to grow by an even lower 4.3 per cent this year.

Nayar, though, put out a slight bright picture saying for FY2020 as a whole, they expect GVA and GDP growth to print at 5.1 per cent and 5.3 per cent, respectively, modestly higher than the advance estimates of 4.9 per cent and 5 per cent. Construction is likely to grow 3.2 per cent in 2019-20, compared to 8.7 per cent the previous year, while the farm sector is forecast to grow 2.8 per cent, compared to 2.9 per cent a year earlier, the ministry said. Economists said the increase in rabi seeding will support the growth of agriculture in the current quarter, although the assumption of government spending for the second quarter seems optimistic given the shortage of revenue.

The reduction in nominal GDP estimates will push the government's fiscal deficit higher by 12 basis points, or upwards of 3.4%, said Soumya Kanti Ghosh, chief economist at State Bank of India in Mumbai. IIP of Electricity registered a growth rate of 1.6 per cent during April-October 2019-20.

In real terms, GDP growth is seen plummeting to 5 per cent in FY20 - lowest since 2008-09 when it fell to 3-odd per cent.

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Rashesh Shah, chairman and CEO of Edelweiss Financial Services, said that the government should take measures to boost consumption in order to revive the economy and attract investments.

"A glance though the demand side also suggest that with the exception of government expenditure, all other demand drivers, namely private consumption, investment and net exports, are down and out".

The estimates say, farm sector is set to grow at 2.8 per cent, against 2.9 percent a year ago, while the mining sector is likely to grow at 1.5 per cent, as compared 1.3 per cent (y-o-y).

The 5.0 percent GDP growth estimate is at the same level as the RBI predicted in its monetary policy review last month.

What aided growth in the first half of the fiscal was the sharp growth in government final consumption expenditure. Private final consumption is pegged to fall to 5.8 per cent from 8.1 per cent last fiscal.

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