India's GDP growth seen falling to 7-7.5% amidst farm sector woes

18 December 2015

The government has lowered its forecast on GDP growth for the current financial year (2015-16) to between 7-7.5 per cent, from above 8 per cent forecast earlier. This has been done in view of the uncertainty with regard to how sectors will continue to perform in the next 4 months.

Also, statistical base effects have created distortions in industrial growth numbers, which in turn have made them volatile. Added to this the uncertainty in agricultural output - and there is a modicum of haziness in the data - says a finance ministry release.

The government has also lowered the nominal GDP growth rate to 8.2 per cent, which is significantly lower than the double digit growth assumed at the time of the budget. ''While nominal GDP growth rate does not really matter as it is just a number which includes inflation impact, the fact that we have had disinflation indicates that nominal growth is low - just 0.7 to 1.2 per cent more than real GDP,'' the release noted.

Addressing the third meeting of the consultative committee attached to the finance ministry on the subject of 'State of Economy' today, finance minister Arun Jaitley said the economic recovery has been evident in recent years.

The credit for bringing about growth goes to the government as private investment has been lackluster given the low demand conditions which in turn has led to surplus capacity in several sectors, Jaitley pointed out.

The finance minister said India clocked 7.3 per cent growth rate in GDP in the year 2014-15, higher than 6.9 per cent growth achieved in 2013-14 and 5.1 per cent in 2012-13, showing that India is firmly on the path of economic revival. This growth compares favourably with the growth of 3.4 per cent achieved by the global economy and 4.6 per cent by the emerging markets and developing economies as a block in the year 2014.

He said the GDP growth was 7.2 per cent in the first half (H1) of 2015, as against 7.0 per cent in the second half of the last year. Growth has also improved from 7 per cent in the first quarter (Q1) of 2015-16 to 7.4 per cent in Q2 of the current fiscal.

Sector-wise, the pick-up in the growth of manufacturing sector can boost overall growth both directly and indirectly because of the substantial backward and forward linkages that the sector has. Manufacturing growth has improved from 6.1 per cent in H2 of 2014-15 to 8.2 per cent in H1 of 2015-16. Service sector growth has been robust at 8.8 per cent during H1 of 2015-16.

Jaitley said this outcome is creditable considering that the global economic situation continues to be uncertain transmitting negative spill-overs that have made emerging markets and developing economies, in general, more vulnerable and fragile. He attributed the extant robust outcome to the slew of policy measures and structural reforms undertaken by the government in the last 19 months.

These included measures to boost growth through enhanced public investment, kick-starting stalled projects, improving the status of financial inclusion significantly, improving governance through systemic changes like open auction for natural resources like coal and spectrum, monetary policy framework and greater fiscal federalism and improving business environment through reforms in policies and regulation among others.

And, despite the fiscal pressures this year when tax collections tend lower, the government hopes to meet the 3.9 per cent target for the fiscal.

One redeeming factor has been an increase in customs and excise duty collections considering that imports have witnessed negative growth and manufacturing is not growing at the trend rates.

Jaitley pointed to the various measures taken by the government to protect the domestic steel industry by raising customs and safeguards' duty in recent times, increase availability of agriculture production, especially that of pulses, as also steps taken to ensure adequate supply of pulses in different states to keep the prices under check.

On exports, the government expects things to get better next year as it continues to focus on export promotion notwithstanding these developments.

The government said a growth in consumption has brought about growth in the economy and feels that the Pay Commission recommendations will boost it further, although it could put pressure on the budget which has to accommodate 0.65 per cent of GDP additionally to accommodate this expense.


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