GDP to grow 7.2% this fiscal, investments to pick up: CSO

The Indian economy is expected to grow at 7.2% in 2018-19, a tad higher from 6.7% in the previous fiscal, mainly due to improvement in the performance of agriculture and manufacturing sectors, the Central Statistics Office (CSO) said Monday.

The CSO estimate is, however, lower than 7.4% growth projected by the Reserve Bank for the current fiscal.

However, economists said the CSO estimate was slightly "conservative" in the current economic environment.

They expect the second advance estimate of the CSO, which will be released by the end of next month, to come closer to the Reserve Bank of India's (RBI) projection of 7.4%.

Ranen Banerjee, partner, public finance, economics and urban, PwC India, told DNA Money, "I believe this is a conservative estimate. There are three factors that will determine which way it could go. One is clearly the global oil prices. How they behave going forward, as that will impact inflation and accordingly the economy. The second is how the business sentiment pans out globally on China and US trade negotiation that is going to be out soon. Third is a domestic factor – the government spending in the pre-election quarter (last quarter). These three things will determine the final numbers," he said.

Releasing the first advance estimates of National Income for 2018-19, the CSO said,"Real GVA (Gross Value Added) is anticipated to grow at 7% in the current fiscal as against 6.5% in 2017-18."

According to the CSO data, the expansion in activities in 'agriculture, forestry and fishing' is likely to increase to 3.8% in the current fiscal from 3.4% in the preceding year.

The growth of the manufacturing sector is expected to accelerate to 8.3% this fiscal, up from 5.7% in 2017-18.

However, the mining and quarrying sector growth rate is estimated to decline from 2.9% in 2017-18 to 0.8% in the current fiscal. Trade, hotels, transport, communication and services related to broadcasting will too witness deceleration to 6.9% from 8% in the previous fiscal.

The growth rate of public administration, defence and other services will also dip to 8.9% from 10% last fiscal.

Electricity, gas, water supply & other utility services growth is estimated at 9.4% in 2018-19, up from 7.2% in the last fiscal. Similarly, the construction sector is expected to grow at 8.9% from 5.7% previous fiscal. Financial, real estate & professional services' growth will be a tad higher at 6.8% this fiscal against 6.6% in 2017-18.

According to the CSO estimates, the per capita net national income during 2018-19 will be Rs 1,25,397, showing a rise of 11.1% as compared to Rs 1,12,835 during 2017-18 with the growth rate of 8.6%.

Gross Fixed Capital Formation (GFCF), a barometer of investment, at current prices is estimated at Rs 55.58 lakh crore in 2018-19 as against Rs 47.79 lakh crore in 2017-18.

At constant (2011-12) prices, the GFCF is estimated at Rs 45.86 lakh crore in 2018-19 as against Rs 40.88 lakh crore in 2017-18.

In terms of GDP, the rates of the GFCF at Current and Constant (2011-12) prices during 2018-19 are estimated at 29.5% and 32.9%, respectively, as against the corresponding rates of 28.5% and 31.4%, respectively, in 2017-18.

D K Srivastava, chief policy adviser, EY India, said the CSO's GDP growth outlook of 7.2% means the GDP growth for the second half of FY19 is likely to be 6.8%. It was 7.6% for the first half.

He believes an estimate of 6.8% GDP growth was below the potential growth rate and expects the second estimate to surprise on the higher side.

"My view is that since in the first half of the current fiscal the average growth was 7.6% and so to reach 7.2%, you would have to lower the second half growth estimate to 6.8%. There are hardly any signs that growth could go down that much. Growth is coming down, but I doubt it will go down that much. I would think 7.4% would be closer to reality. Even 7.4% growth would be lower than our potential growth, but it will keep inflation low; below the RBI's target of 4%," said the EY economist.

Sunil Kumar Sinha, director - public finance and principal economist, India Ratings and Research, a Fitch group company, said the CSO's GDP projection was marginally lower than his rating agency's estimate of 7.3%.

"As expected GDP growth recovered sharply in FY19 from 6.7% in FY18. However, the GDP growth in FY19 would have been even better, but for the global headwinds caused by an abrupt rise in crude oil prices, strengthening of the US dollar and rising global trade friction. These have been quite unsettling for the Indian economy. However, some of the positives that may guide the economy into the new fiscal from demand side are healthy investment growth of 12.2% (7.6% in FY18) and sustained expansion in consumption at 6.4% (6.6% in FY18)," he said.

Sinha also said based on the CSO's first advance estimate and 1HFY19 data, second half of FY19 will be disappointing with GDP growth slowing down to "6.4%".

"From the supply side, the growth drivers have been manufacturing, electricity and construction besides public administration. The other positive Ind-Ra sees in the first advanced estimate of the National Income data for FY19 is that growth drivers of the economy are getting more evenly balanced - both from the demand as well as the supply side," he said.

PwC's Banerjee is a bit intrigued by the nominal GDP number put out by the CSO at 12.5%.

"One very interesting thing to note is that the nominal GDP estimate is around 12.5%. If the nominal GDP is at that rate and if for the (first) six months our inflation has been under 5% and this quarter also it doesn't look like it will go beyond 5%, and if the oil prices behave well then we may not have a 5%-plus inflation in the last quarter. Given that, it's a bit surprising why the nominal GDP number is so high whereas the real GDP number is quite conservative," he said.

Thus, he believes that if inflation were to come lower than 5% in the second half of the fiscal then the final GDP number may surprise on the upside.

"Inflation is not likely to go higher than 5% in the second half. It should not because oil prices have gone down. Food and vegetable prices have also not gone up. So I don't see any reason why inflation should be on a higher side, unless there is a sudden spike in oil prices again. You have seen a sudden downturn and if there is a sudden spike, then it may push up inflation but I don't see it shooting beyond 5%. If there are no shocks, then the second advance estimate of GDP may come higher than 7.2%," Banerjee said.

THE PROPELLERS

• 7% – Gross value added likely to grow at during the fiscal
   
• 6.5% – Expansion in GVA in the previous year
   
• 8.3% – Manufacturing output estimated to rise in this fiscal