Takeaways from GDP estimate

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Bikky Khosla | 10 Jan, 2017
The CSO last week came out with its GDP estimate, which was pegged at 7.1 percent for the current financial year, lower than the 7.6 percent growth in 2015-16. The data, which is in sync with the RBI's earlier estimate, is not good news, but it's also not something to panic about. Majority of economists, in fact, are of the opinion that demonetisation -- the impact of which has not been taken into account by the CSO -- may pull down economic growth further in short-term, and for many what is most important is the upcoming Union Budget, which they view will be a make or break event for the economy.

For some time now, the Indian industry is demanding a growth-oriented Budget, and now with the latest GDP estimate this demand gets louder. The data shows that manufacturing is expected to slow down to 7.4 percent from 9.3 percent, construction activities to 2.9 percent from 3.9 percent, and mining and quarrying to 5.6 percent from 7.4 percent in 2015-16. Gross fixed capital formation, a barometer of investment, is a big area of concern. Given that the GDP estimate does not factor in the events after demonetisation, the figures may slide further, and the Finance Ministry must also take care of this fact while preparing the Budget.

In fact, the CSO's decision to release the advanced estimate without taking the effects of demonetisation into consideration, does not sit well with many. The argument is that a reasonable estimate of the demonetisation impact is required before the Budget so that a comprehensive strategy for economic revival can be prepared, but now the CSO is expected to revise its estimates on February 28, after announcement of the Budget on February 1. The advance estimate was brought forward by a month, and with the demonetisation effects not taken into account, the Budget this year will have to be prepared based on just nine months' data.

It is largely expected that the demonetisation move is going to have a positive impact in medium and long term. In addition, the declining trend in private sector investment is expected to reverse in the second half of the current fiscal. Government spending is also projected to nearly double in 2016-17. Similarly, it is also encouraging to see a robust growth in government's tax collection in April-December period. But we can hardly take solace in these facts. A lot is yet to be done to push private investment, bring consumer spending back on track and revive exports. The Budget must address these concerns.

I invite your opinions.