The economic growth will scale a three-year peak of 7.2% in the current fiscal, against 6.7% a year before, as a recovery in the investment cycle is expected to soften the blow of a slowdown in private consumption, according to the advance estimate released by the Central Statistics Organisation on Monday. However, a projected marginal drop in FY19 nominal GDP from the budgeted target will exert further pressure on a poll-bound government — already facing a shortfall in indirect tax receipts and scouring for resources to make up for it — to either cut expenditure in excess of Rs 2,500 crore or shore up revenue to that extent from its budgetted goals to maintain its fiscal deficit aim of 3.3%.
The CSO’s estimate is lower than the Reserve Bank of India’s GDP growth projection of 7.4% for FY19, although it’s higher than that of some private analysts who had lowered their projections to around 7% in recent months. Manufacturing has showed signs of a pick-up and is now forecast to grow 8.3% this fiscal year, compared with 5.7% in the previous year. Farm and allied sector growth is projected at 3.8%, up from 3.4%. Growth in construction, which got hit after demonetisation, is expected to recover to 8.9% in FY19, against just 5.7% a year before. Financial, real estate and professional services will grow 6.8% in FY19, compared with 6.6% in the last fiscal, the CSO said.
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On the demand side, however, growth in private final consumption expenditure, a key driver of the economic growth in recent years, is expected to falter to 6.4% in FY19 from 6.6% a year before. Even the government final consumption expenditure is expected to grow at a slower pace — 9.2% in FY19, against 10.9% in the pear before. However, gross fixed capital expenditure is expected to stage a rebound — it will grow 12.2% in FY19 against 7.6% in the last fiscal. Consequently, while the share of such fixed investment in GDP is expected to rise from 31.4% in FY18 to 32.9% this fiscal, that of private consumption will fall. Some analysts however expressed doubts about the sustainability of the recovery in private investments.
In a report last month, Nomura said: “Lower oil prices have created a positive environment for India, but we are downbeat on the economic outlook as we expect the economy to transition from a growth sweet-spot in 2018 to a soft patch in 2019.”
GDP growth had fallen to a worse-than-expected 7.1% in the second quarter, from 8.2% in the previous quarter, dragged down by a slower consumer spending and farm growth. With the fall in global crude oil prices and strengthening of the rupee in recent weeks, the government plans to prop up rural demand through higher spending and a financial package for farmers, likely in the annual budget to be presented on February 1.