GST impact to slowdown India's 2017-18 GDP growth to 6.5%

Lucy Hill
January 6, 2018

Manufacturing sector growth has been forecast at 4.6% in 2017-18, compared with the 7.9% expansion provisionally estimated for 2016-17.

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.

GDP at current prices - the big macroeconomic number that serves as the foundation for the budget math - is expected to attain a level of Rs 166.28 lakh crore, reflecting a 9.5 per cent growth over the previous year.

While the latest CSO estimates project private final consumption expenditure, a proxy for household spending, growing by 6.3% in 2017-18, down from 8.7% in the previous year, gross fixed capital formation - a key investment metric - is expected to accelerate to 4.5%, from 2.4% in 2016-17.

Anant said that with more corporate data now being available since the second quarter, including the GST collections for November, although GDP is estimated to growth further, the dampening effect of the first quarter's fall would pull down the grwoth rate for the full year.

India's per capita income will increase by 5.3% to Rs 86,660 in 2017-'18, the office said. "Implicit calculation suggests growth in the second half of 2017-18 will be better thatn the first".

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The demonetisation and a poorly crafted GST are likely to exact a price with economic growth forecast at 6.5 per cent this year - the slowest pace since the Narendra Modi government assumed office in May 2014.

The practice started a year ago after the government shifted the presentation of the Union Budget to 1st February from the end of February.

The growth rate of the agriculture, fishing and forestry sector is expected to decline from 4.9% in 2016-'17 to 2.1% in 2017-'18.

"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 EAC-PM Chairman said the advance estimate numbers only reinforce what was already known - that reforms undertaken by the government will place the economy on an upward growth trajectory, without compromising on fiscal consolidation. "We expect growth to normalise gradually over the next four to six quarters as the disruptive impact of major policy changes fades", Standard Chartered said. Taken together, India's "real" or inflation-adjusted GDP grew 6 percent in April-September.

Despite the poor estimates, the analysts are optimistic about economic growth in 2018-19. "Therefore, they are not fully factoring in the expected pickup in growth in the later months of FY2018, related to a favourable base effect and a "catch up" following the subdued growth momentum in H1 FY2018", said Aditi Nayar, Principal, Economist at rating agency ICRA.

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