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.
