Lower than expected tax and non-tax revenues and the implementation of goods and services tax (GST), along with other factors, are expected to drive down this fiscal's national income or gross domestic product (GDP) growth to 6.5% from 7.1% last fiscal, according to the advance estimate put out by the ministry of statistics and programme implementation (Mospi) on Friday.
The good news, embedded in Mospi's early estimates, is that the economic growth momentum is expected to pick up in the second half (H2) of the current fiscal at 7% compared to the 6% growth in the first half (H1). The GDP in the first and second quarters of this fiscal grew at 5.7% and 6.3% respectively.
"The second half (of the current fiscal) on (an) average is going to be better than first half. So, if that is what we are saying then the expectation is that growth will continue to improve," T C A Anant, chief statistician and secretary of Mospi, told the media while releasing the data.
Further, as per the ministry's advance statistics on national income, the gross value added (GVA) for this fiscal could be 6.1% as against 6.6% in the last fiscal.
These estimates undershoot projections of Reserve Bank of India (RBI) at 6.7% and chief economic advisor Arvind Subramanian's wide range of between 6.75% and 7.5%.
This sharp dip in the GDP and the GVA numbers prompted former finance minister P Chidambaram to put out a series of tweets. "Our fears and warnings have proved true. GDP growth in 2015-16, 2016-17 and 2017-18 (est) is 8.0, 7.1 and 6.5. These numbers prove there is a slowdown," he tweeted.
In another tweet, he asked, "will government continue to claim that India's growth rate is robust?" And finally admonishing the government to begin doing "solid work"; "it is time government stops making tall claims and bends down to do solid work".
The ministry projects manufacturing growth for the whole financial year to slow down to 4.6% from 7.9% last year, along with growth in agriculture, forestry and fishing expected to drop to to 2.1% from 4.9% during the same period last year.
Among the sectors that are likely to register higher growth this fiscal are construction at 3.6% against 1.7% last year and trade, hotels, transport and communication and services related to broadcasting at 8.7% versus 7.8%.
The ministry has also estimated the nominal GDP to grow at 9.5% against the budgetary outlook of 11.75%. Economists feel a lower growth estimate could see the government wandering away from the fiscal consolidation path and not meet their fiscal deficit target of 3.2% of the GDP for the financial year 2017-2018 (FY18).
"Nominal GDP growth is expected at 9.5%. This would imply a reduction in nominal GDP as compared to the budgeted magnitude, which could mean that keeping the 3.2% (of the GDP) fiscal deficit target could actually amount to a lower nominal magnitude of borrowing," said D K Srivastava chief policy advisor, EY India.
He said in view of the lower magnitude of borrowing, the government would have to resort to increasing its revenues or cutting expenditure if they would want to meet fiscal deficit target set in the budget.
The EY economist said the adjustment required on account of the income gap could be placed at around Rs14,000 crore. This could translate into a slippage of 0.05% on the budgetary fiscal deficit target of 3.24%.
Srivastava also believes that the growth momentum has already picked up and is likely to continue in the next fiscal; "Investment is picking up and that is positive news. This will give momentum to growth in the next year".
Aditi Nayar, principal, economist ICRA, said the Mospi's estimates of GDP and GVA were conservative.
"The advance estimates for the full year have been based on limited data, which would be available for a period of 6-9 months for different sectors. Therefore, they are not fully factoring in the expected pickup in growth in the later months of FY2018, related to a favourable base effect and a 'catch up' following the subdued growth momentum in H1 FY2018. Accordingly, the advance estimates for GDP and GVA growth appear to be understating economic expansion for FY2018, in our view," she said in statement issued by the ICRA.
Nayay's own outlook for GVA and GDP growth in the current fiscal was 6.5% and 6.7% respectively; "at present, we expect GVA growth to rise to around 6.7% in Q3 FY2018 and a sharp 7.5% in Q4 FY2018".
Ranen Banerjee, partner - public finance and economy, PwC India, termed the ministry's estimate achievable.
"Given the momentum seen in the core sector growth, PMI (purchasing mangers' index) indices and developed world economies, the optimism may not be belied. Further wearing off of the demonetisation related residual effects as well as progressively stabilising transitionary effects of GST is likely to support the higher growth rate estimates for the last two quarters. If the economy grows at 6.8 percent in Q3 and 7.2 percent in Q4 supported by base effects, we are likely to achieve the CSO (chief statistics office) advance estimates. Crude prices could be the only story spoiler!" he said.
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