12 Jan 2018 19:37 IST

Advance GDP estimates: Worrying trends

Private Final Consumption Expenditure shows that weak demand conditions still persist

Last week, the Central Statistics Office came out with the advance estimates for national income for 2017-18. And the prognosis is not a happy one.

The GDP growth rate, which was 7.1 per cent in 2016-17, has been pegged at 6.5 per cent — a four-year low. Gross value added, which the CSO feels is a more accurate indicator of economic activity, the GDP is expected to grow at 6.1 per cent, against 6.6 per cent last year.

Though the ‘Mining and Quarrying’ sector has grown at 2.9 per cent compared with 1.8 per cent in 2016-17, the ‘Manufacturing’ sector’s growth has dipped to 4.6 per cent compared with 7.9 per cent in 2016-17, which is worrying.

Agriculture hit — again

Darkening the clouds further is the performance of the agriculture sector, which has become such an important talking point these days. As a perceptive commentator noted, this sector is in the news only when it is facing a crisis. The agriculture sector grew only by 2.1 per cent against 4.9 per cent in 2016-17. The political implications of this were evident in the recent Gujarat elections.

The Agriculture Ministry has, however, sought to put a brave face by saying that the CSO factored in crop coverage data only till August 2017. The Ministry is enthused by the rabi acreage — which it says has touched 58.6 million hectares by January 5, 2018 — and expects a better farm sector performance going ahead.

One hopes the Agriculture Ministry’s expectations come true, otherwise the political economy ramifications will be hard to bear for the Centre, given that Assembly elections are due in a number of States this year.

Optimistic view

Chief Statistician TCA Anant has, however, put a positive gloss on the numbers, saying that the worst is behind us and the coming quarters will see good growth. In a recent interview, he said there was improvement in growth rate in capital formation, but crucially he added that it needed to grow faster than the average GVA growth.

The government also needs to keep a watchful eye on the global crude oil prices, which are ruling at $68 per barrel. With retail inflation hardening at 4.88 per cent in November 2017, and SBI’s Ecowrap forecasting CPI at 5-5.2 per cent in December, the RBI is unlikely to oblige the Finance Ministry with a rate cut any time soon.

But here, again, Anant took a more optimistic view of things. According to him, global oil prices are unlikely to remain significantly above $60/barrel in the long term. He also expects shale production to be restored.

Weak demand

For the government, however, the most depressing piece of data in the advance estimates is the Private Final Consumption Expenditure which, in terms of GDP, is flat at 58.8 per cent. This shows that weak demand conditions still persist in the economy. The idle capacity in industry is a further pointer towards this.

Weak demand is also evident in the IIP numbers, where the Consumer Durables category contracted to (-)1.9 per cent year-on-year in the April-October period. This category had posted a 6 per cent growth in the April-October 2016-17 period. Though Consumer non-Durables grew by 7.5 per cent in the April-October 2017-18 period, it is still lower than the 9.5 per cent growth posted in April-October 2016-17.

Stimulus package

So in the upcoming Budget the Finance Minister will have to craft a creative stimulus package which will not only spur investments but also demand.

But, the government’s fiscal space also seems to be crimped. Given how sensitive this government is to the views of international rating agencies, it may find it difficult to breach the 3.2 per cent fiscal deficit target.

Though the NK Singh Committee had recommended breaching this target if the economy was facing ‘extraordinary circumstances’, whether the Finance Minister will use this route to formulate an expansionary Budget remains to be seen.

All eyes now will be on Arun Jaitley and the Budget which he will present on February 1.