Budget 2017: Jaitley may factor in 7-7.5% GDP growth despite note ban

Gaurav Choudhury

Moneycontrol

Finance minister Arun Jaitley will likely project a 12-13 percent nominal gross domestic product (GDP) growth for 2017-18, which, factored with a relatively benign inflation trend, could push India’s real or inflation adjusted economic growth to about 7-7.5 percent.

Economists and experts will be keenly watching the finance minister’s GDP growth projections in Budget 2017 as it would offer cues on how fast the government expects the economy to revive from the demonetisation-induced deceleration.

While the Central Statistics Office (CSO) has projected that, in real terms, India’s GDP—the value of all goods and services produced in the country—will grow at 7.1 percent in 2016-17 from 7.6 percent last year, the revised figures in May could show a sharper deceleration as the advanced estimates were based on incomplete corporate income and factory output data.

In the previous budget, Jaitley had factored in a nominal GDP growth rate of 11 percent in 2016-17. In the advanced national income estimates earlier this month, the CSO has forecast a nominal GDP growth of 11.9 percent.

Question marks remain on the sharp projected jump in India’s nominal GDP growth in 2016-17 from 8.7 percent in 2015-16 amid signs of slide in consumer goods sales and muted investment activity because of the economy-wide cash crunch.

Real or inflation-adjusted GDP is usually calculated by subtracting the growth in actual or nominal GDP by the inflation rate or “price deflators.”

Nominal GDP growth has been declining sharply over the last few years. With a mixed demand outlook in the coming months, a flat growth in nominal GDP could also mean that if inflation starts rising because of hardening oil prices and other factors, “real” or “inflation-adjusted” GDP growth rate can fall sharply from the current 7-7.5 percent levels.

While India remains the world’s fastest growing major economy ahead of 6.7 percent growth in China that is battling an industrial deceleration, question marks remain over its ability to hold on to that status following the demonetisation drive.

The surprise move to scrap old Rs 500 and Rs 1000 currency notes from midnight of November 8,  has hurt household spending on aspirational and essential products, which have been the edifice of the India growth story.