Home Business GDP growth witnessed at four-year low of 6.5% in 2017-18

GDP growth witnessed at four-year low of 6.5% in 2017-18


(G.N.S) Dt. 05
New Delhi
India lowered its forecast for the current year’s economic growth on Friday before a federal budget is released next month, as businesses were hit by the chaotic launch of new nationwide tax last July.
Finance Minister Arun Jaitley had earlier estimated the economy would grow around 7.5 percent in the 2017/18 fiscal year, generating enough tax to keep the fiscal deficit at 3.2 percent of GDP after meeting spending targets.
Gross domestic product is now estimated to grow an annual 6.5 percent in 2017/18, slower than a provisional 7.1 percent growth in 2016/17, Ministry of Statistics said in a statement.
Most private economists have pared the growth forecast to 6.2 to 6.5 percent for this fiscal year, citing the teething troubles faced by businesses during the roll out of a goods and services tax (GST).
“The GST transition impact is clearly visible,” said Shubhada Rao, chief economist at Yes Bank. Sectors such as manufacturing and hotels were badly hit, she said.
Complex rules and technical glitches meant the GST, aimed at transforming India’s 29 states into a single customs union, hit millions of small businesses.
Manufacturing is now forecast to grow at 4.6 percent this fiscal year compared with 7.9 percent growth in the previous year, the statement said. Farm output may slow to 2.1 percent from 4.9 percent.
Finance ministry officials earlier said slower economic growth was likely to hit revenue collections this year, forcing them to resort to borrow from the market to meet spending targets.
Analysts said despite the lower economic growth, the Reserve Bank of India (RBI) was expected to hold policy rates steady after a recent uptick in retail inflation, which touched 4.88 percent in November, its steepest level in 15 months.
“Given the recent uptick in inflation pressure and with inflation likely to remain around 5 percent going ahead, we expect the RBI to be on hold with a guarded stance even though growth estimate has disappointed slightly,” Rao said.
The statistics office will release economic growth data for the October-December quarter on Feb. 28, along with revised full-year growth estimates.
It is worth to notice here that before few days global ratings agency Fitch said that the country has the potential to grow at an average of 6.7 per cent per annum over the next five years and will be the fastest growing large economies.
Even though this rate of growth is lower than the potential and what policymakers have been aspiring for, it is ahead of the 5.5 per cent growth estimated for China and Indonesia, who are joined at the second fastest rank.
Demographic factors, where India is among the youngest countries in the world with a maximum number of people in the working age group, and investment rates will be aiding the country, it said in a report today.
The country is set to witness a continued robust growth in the working-age population in the next five years, bolstering growth potential, it said, adding Indonesia, Mexico, Turkey and Brazil will also benefit from a similar trend.
The GDP recovered to 6.3 per cent in the September quarter from a six-quarter-low of 5.7 per cent in the preceding June quarter. The RBI has massively cut its estimates on growth for the full fiscal to 6.7 per cent, but expects a bounce back in the remaining two quarters at 7 and 7.5 per cent, respectively.
Elaborating on its slower growth estimate on China, the agency the significant slowdown from recent historical average growth is on a deteriorating demographic outlook and a slowdown in the rate of capital accumulation as the investment rate has declined.
The agency said India has an “impressive rate of capital accumulation per worker” which helps in maintaining the economic growth and also in upping the living standards. However, it said going by total factor productivity, which captures improvements in the efficiency of the production process, India has some catching-up to do.
“Total factor productivity performance has also been surprisingly weak given its low level of GDP per capita,” the report said.
It can be noted that Fitch’s rival Moody’s had surprised by revising upwards the sovereign ratings by a notch to Baa2, backing the reform processes undertaken by the government.

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