Why in news?
The Central Statistics Office (CSO) recently released the first advance estimates of economic growth.
How is the growth scenario?
- The CSO expects gross domestic product to grow at 7.2% for 2018-19, an improvement over the 6.7% growth in the previous year.
- The most significant aspect of the latest estimates is the clear deceleration in the growth momentum.
- The first half of the fiscal witnessed a respectable growth rate of 7.6%.
- However, GDP growth rate dipped sharply from 8.2% in the first quarter to just 7.1% in the second quarter.
- A full year growth of 7.2% implies that the CSO expects economic growth to drop to just 6.8% in the second half of the year.
- This clear dip in growth rate is seen in most sectoral estimates as well.
- E.g. manufacturing is expected to grow at 8.3% in FY19, sharply higher than the 5.7% in FY18.
- But it is expected to slow down sharply from 10.3% in the first half of the year to just 6.4% in the second half.
- Likewise, on the expenditure side of the national income accounts, both private and government consumption is expected to moderate.
How is the investment prospect?
- The gross fixed capital formation (or investments) is projected to rise sharply in the second half of the year.
- A rise in the rate of investments from 7.6% a year ago to 12.2% in 2018-19 is welcome.
- But it is uncertain if the increase in investments will necessarily sustain as new projects tend to be held up before a general election.
- It is also possible that even these estimates have an element of overestimation.
- Evidently, the data compiled by the Centre for Monitoring Indian Economy showed a fall in investment projects being completed.
- It also highlighted a 30% drop in new investment projects taken up between December 2016 and 2018.
What is the dispute?
- The estimate has come as a disappointment because it is below the expectation of most institutions mapping the Indian economy.
- E.g. both the RBI and the International Monetary Fund expected the economy to grow by 7.4% this year.
- Even the Union finance ministry expected a growth rate of 7.5% for the current fiscal.
Hoe does the future look?
- Overall, there is indeed some merit in the government’s optimism as India remains the fastest-growing major economy in the world.
- But there are some factors that could possibly drag down growth in the second half.
- Government’s ability to come up with economic boosters is uncertain as fiscal deficit in the first 8 months of the year has crossed 112% of the full-year target.
- In this context, the CSO estimates are significant as they will provide the foundation for the preparation of the interim Budget.
Source: Business Standard
