Watch this video to understand the importance of the advance estimates and what the projections indicate about various sectors of the economy.
India’s economy is forecast to grow 5 percent this fiscal year, its slowest pace in 11 years.. this is as per the first advance estimates released by the National Statistical Office (NSO). Let us understand the importance of these advance estimates, what this projection indicates about various sectors of the economy and how big a challenge it will post in front of the government.
What do the first advance estimates of GDP indicate?
The projected GDP growth rate of 5 percent for FY20 is the lowest since FY09, the year of the global financial crisis when GDP grew just 3.1 percent. It reflects a sharp decline from 6.8 percent in FY19 as the economy is hit by a broad-based slowdown, fragile consumer sentiment and stagnant investments. The Central Statistics Office (CSO) estimate is in line with the Reserve Bank of India’s projection of 5 percent growth and substantially lower than the 7 percent given by the Economic Survey for FY20.
It estimates the Gross value added (GVA), which is GDP minus net taxes, growth to grow at 4.9 percent as against 6.6 percent in FY19. GVA is a more realistic guide to measure changes in the aggregate value of goods and services produced in an economy.
The CSO also projects a broad-based slowdown. It estimates manufacturing growth will be seen at 2 percent year-on-year (YoY), which is a 15-year low, as against 6.9 percent growth in FY19.
Construction growth is seen slipping to a six-year low of 3.2 percent in FY20 from 8.7 percent in the last fiscal. The services sector is projected to slow to 6.9 percent in FY20 from 7.5 percent in FY19 and 8.1 percent in FY18 and the farm sector growth is seen at 2.8 percent in FY20, lowest in four years.
While private final consumption expenditure (PFCE) may grow at 5.8 percent against 8 percent in FY19; gross fixed capital formation (GFCF) –which is a useful metric to measure corporate investment activity - is expected to come in at just 1 percent against 10 percent in the previous year.
Government final consumption expenditure (GFCE) or government expenditure is expected to grow at 10.5 percent in 2019-20 against 9.2 percent a year ago.
Why are these numbers significant?
The GDP advanced estimates are crucial as they will help in the government’s budget-making process. Estimates of growth will help in calculating deficit numbers for the current fiscal. It will also form the basis for the government to estimate the growth numbers for 2020-21 to help in the tax collection and buoyancy and fiscal deficit estimates for the next fiscal.
The second advance estimates expected to be released on February 28, will be based on actual data for three quarters, and the provisional estimate to be released in May, should give a better picture of the health of the economy.
How are these figures extrapolated?
The projections are based on the first advance estimates of crop production information on indicators like sales tax, deposits and credits, passenger and freight earnings of railways, passengers and cargo handled by civil aviation, cargo handled at major seaports and sales of commercial vehicles available for the first seven months of the financial year.
What are the implications of these numbers?
Current advance estimates of GDP suggests a tepid recovery in the second half of the fiscal a lower than estimated GDP number may mean the fiscal deficit may also come in substantially higher than budgeted. Some see this as a jolt to the 5-trillion dollar economy by 2025 ambition.
This also indicates increasing pressure on Finance Minister Nirmala Sitharaman to announce measures to revive demand and boost investments in the Budget 2020.
While, the government has already announced a number of measures to prop up the economy, including a sharp cut in the corporate tax rate, support for stalled housing projects and Rs 102 lakh crore plan for infrastructure, but experts believe the economy needs complete hand-holding at the moment.
Most experts are talking about the need to revive consumption. There are also suggestions for a cut in personal income tax to stimulate demand.
All eyes are now on the Budget to see what steps does the government take to pump prime the economy.For more on the issue, watch the video by Sakshi Batra.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.