The Central Statistics Office (CSO) on Monday released the first advance estimates of gross domestic product (GDP) for 2018-19, which showed the Indian economy is likely to grow at 7.2% in the current fiscal ending 31 March. Mint analyses the implications.

Is 7.2% GDP growth forecast a reason to cheer?

When viewed annually, CSO data suggests the economy is likely to accelerate to a three-year high of 7.2% in 2018-19 after decelerating to 6.7% in 2017-18. However, the quarterly data signals a sequential slowdown in the Indian economy. After GDP growth decelerated faster than anticipated in the second quarter (July-September) to 7.1% from 8.2% in the first quarter (April-June), CSO’s full-year estimate suggests the economy may grow at 6.75% in the second half (October-March), against 7.75% in the first half (April-September). While farm and industrial sectors are likely to grow faster in FY19 than in FY18, the services sector may slow down.

What are the upside and downside risks?

While most of the slowdown in the second half of the current fiscal will be due to the fading base effect of the first half, a sluggish increase in rural wages and low farm prices, despite a hike in minimum support prices, are likely to hamper rural demand. Limited scope for government spending and worsening prospects of global growth will add to the worries in the second half. However, election-related political spending, targeted mostly at the rural economy, and an increase in disposable income from softening oil prices observed in the December quarter, may provide the upside to rural demand.

Will this data be revised?

Yes. On 28 February, CSO will release the third quarter (October-December) GDP data and the second advance estimates. CSO will revise its annual growth projection after incorporating the third quarter data.

Why did CSO release the annual projection without third quarter GDP?

CSO usually releases the estimates a month before the Union Budget. In FY18, the Narendra Modi government advanced the budget presentation to 1 February. So this time, CSO released the estimates in January as sought by the finance ministry. Since third quarter GDP data is not available so soon, it took into account other lead indicators such as factory output and government expenditure, which were available after the second quarter GDP data was released, to project the full-year growth.

How will the data help the government?

The data will help the government evaluate the growth outlook, tax buoyancy and calculate deficits for budgetary purposes. The higher-than-budgeted nominal GDP growth of 12.2% estimated for FY19 against the budget estimate of 11.5% will help it show better fiscal deficit and revenue deficit numbers in a revenue-scarce year. Last year, the government did put aside the CSO estimate of 9.5% nominal GDP growth for FY18 and assumed 10.5% nominal GDP growth, as was suggested by the Economic Survey.

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