New Delhi: India’s gross domestic product (GDP) will grow by 6.5% in the current fiscal, sharply down from 7.1% growth clocked by it in 2016-17, the Central Statistical Office (CSO) said on January 5, confirming that the hasty implementation of the Goods and Services Tax (GST) has had a toll on economic growth.
The CSO’s estimate on GDP growth for 2017-18 is even lower than the Reserve Bank’s lowered projection of 6.7%. The central bank had initially forecast GDP growth at 7.3% for this fiscal.
The GST-induced slowdown has robbed India of its coveted tag of the “world’s fastest-growing economy”. China, which is projected to grow by 6.8% in 2017, has regained the status which it had lost to India in 2015.
The government rolled out GST on July 1, which disrupted economic activity, especially in the informal sector, as small businesses found it too complicated to comply with. Exporters too were hit hard as the new tax regime increased their working capital requirement. Reduction in duty drawback rates further dented the competitiveness of Indian exporters.
The consequence was that India’s export growth turned negative in October. Though it bounced back in November, questions remain about its sustainability in coming months.
The gross value added (GVA) is projected to grow by 6.1% in 2017-18, down from 6.6% in 2016-17. The manufacturing sector is expected to grow by 4.6% vs 7.9% the previous year, agriculture by 2.1% vs 4.9% , electricity and utility services by 7.5% vs 7.2% in the last fiscal. The construction sector, which has been in the doldrums so far, is seen picking up to 3.6% from 1.7% in 2016-17.
Finance, insurance, real estate and profession services sector is expected to post 7.3% growth, up from 5.7% in 2016-17.
GDP growth picked up to 6.3% in the July-September quarter after slowing to a three-year low of 5.7% in the first quarter, signalling that the economic recovery had gathered momentum. That gave rise to hope that economic growth for the full year will average at above 7%. However, the latest numbers have put a dampener on any such hope.
With the government struggling to meet the fiscal deficit, the upcoming budget is unlikely to announce mega public spending plans to boost economic growth. There appears to be no scope for the central bank loosening monetary policy to support growth either, with inflation threatening to zoom out of its comfort zone. The upswing in global oil prices could further reduce fiscal scope for the government to undertake any major spending plan to stimulate growth. Private investment has not yet shown any signs of picking up in a big way.
Significantly, India’s economic growth horizon looks clouded at a time when the global economy is gathering momentum. The Organisation for Economic Co-operation and Development (OECD), has forecast global economic growth at 3.5% in 2017, up from 3.1% in 2016. It expects the growth to pick up to 3.7% in 2018.