GDP growth may slow down to 6.5% in FY18

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India's economy is set for a slowdown in the financial year ending March 31 with the government pegging the gross domestic product (GDP) growth rate at 6.5% significantly lower than the growth rate of 7.1% last year. The CSO's estimate of national income for 2017-18 showed the GDP at constant (2011-12) prices for 2017-18 is likely to attain a level of Rs 129.85 lakh crore. GDP growth in 2015-16, 2016-17 and 2017-18 (est) is 8.0, 7.1 and 6.5.

Growth in gross value added (GVA) - a broad measure of the value of all goods and services produced in the economy that strips out the impact of taxes and subsidies - also slowed to 6.1 per cent, sharply lower than the RBI's estimate of 6.7 per cent.

According to CSO, GVA is expected to grow at 6.1% during FY2017-18 against 6.6% in FY2016-17 at basic constant prices of 2011-12. "Implicit calculation suggests growth in the second half of 2017-18 will be better thatn the first". "For this year, the nominal growth is expected to be far lower than what was estimated in the Budget, so the fiscal deficit number will have to be adjusted if the 3.2% of GDP target is to be maintained". Many economists have blamed the chaotic implementation of Goods and Services Tax (GST) in July for the reduced GDP.

Anis Chakravarty, Lead Economist, Deloitte, said the estimate for yearly GDP showed that the growth momentum was expected to improve in the coming quarters in line with expectations and signals from leading indicators.

These will be the first official full-year growth estimates after GST's rollout.

Nayay's own outlook for GVA and GDP growth in the current fiscal was 6.5% and 6.7% respectively; "at present, we expect GVA growth to rise to around 6.7% in Q3 FY2018 and a sharp 7.5% in Q4 FY2018". However, the CSO will have factory output data for just one additional month of October for its full-year GDP projection compared to what it had till the second quarter (July-September). However, the fiscal deficit at the end of November touched Rs 6.12 lakh crore, or 112 per cent of the budget estimate for 2017-18, mainly because of weak GST collections and higher government spending. "While this gives the impression of a downturn, in reality, growth has bottomed out in the first quarter of the current year and is now on a recovery", the Confederation of Indian Industry (CII) said in a release.

"Accordingly, the advance estimates for GDP and GVA growth appear to be understating economic expansion for FY2018, in our view", Nayar said.

But what is worrying is that finance minister Arun Jaitley had projected a GDP growth of 11.75 per cent at current prices in his budget last February (Rs 168.47 lakh crore).

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