RBI axes GVA outlook to 6.9% from 7.1% for FY17

One by one, practically, all agencies have axed India’s growth rate estimates for the current fiscal, and on Tuesday Reserve Bank of India (RBI) too slashed it to 6.9% from earlier 7.1%.

The central bank’s monetary policy statement said; “GVA (gross value added) growth for 2016-17 is projected at 6.9% with risks evenly balanced around it. Growth is expected to recover sharply in 2017-18 on account of several factors. GVA growth for 2017-18 is projected at 7.4%, with risks evenly balanced”.

The central bank’s downward revision of the GVA number has come in barely two months after it had snipped its growth forecast to 7.1%, from 7.6%.

Its latest outlook for GVA in the current fiscal is a tad higher than International Monetary Fund’s (IMF) 6.6% and government’s economic survey 2016-17 estimate ranging from 6% to 6.75%.

This has prompted D K Srivasatava, chief economic policy advisor of EY India to term it as “somewhat overoptimistic”.

“It is somewhat overoptimistic, in the sense, that the full effect of demonetization has still not been factored in. In their earlier monetary policy announcement, they had indicated that the effect of demonetization is only 0.15 percentage points on the output which appears to be somewhat optimistic,” he said.

According to Srivastava, RBI’s optimism could have stemmed from “lack of data” on the impact of demonetization of high value currency notes, which is supposed to have hit discretionary spending, especially in the service sector.

“Nevertheless, it is only a few basis points difference (from most other estimates). The extent of optimism (could be) due to lack of data,” he said.

The EY economist’s own prediction was 6.6% GVA growth, similar to the average of the range given in the Economic Survey 2016-2017and the IMF.

For Anis Chakravarty, partner and lead economist at Deloitte India, the central bank’s GVA outlook has not come as a “surprise” as some hint of the government’s economic growth rate estimation was provided in the Economic Survey.

The management and financial consultancy firm has also cut its growth forecast to 6.7%-6.8% from 7.6%.

Last month, Central Statistic Organisation’s (CSO) advance estimate pruned India’s GDP growth to 7.1% from its earlier 7.8%, without considering the demonetization fallouts.

“On the GVA part, I don’t think the RBI is being overoptimistic. They are being overly cautious here. There is a tendency that the government estimates are slightly higher than what is achievable or achieved. So, the fact that we are getting numbers ranging from 6.5% to 7% gives us the indication that it is likely to be in that range,” said Chakravarty.

The Deloitte economist sees good monsoon, which had boosted agricultural growth, as the silver lining that has kept the economic growth outlook propped up for fiscal 2017.

According to him, other numbers on industry, service and exports for the current fiscal have not been very robust. He, however, believes, economic growth will bounce back in the next fiscal, post the launch of the goods and services tax (GST).

“I strongly believe by FY18, numbers will pick up again, post GST implementation. The first and second quarters are going to have slight issues with GST implementation. But, overall more than current account deficit – as we see is not a problem – I think trade is a problem. It (trade) will pick up gradually,” said Chakravarty.

Going by the 7.3% and 7.1% growth in the first two quarters of the current fiscal, he said, the growth would have been marginally higher at 7%-7.5% without demonetization.