The government’s advance estimates for economic output and growth for the fiscal year ending in March may raise eyebrows, but only for the wrong reasons. The National Statistical Office (NSO) has estimated that Gross Domestic Product (GDP) will expand by 5% in the 12-month period, in line with the Reserve Bank of India’s sharp downward revision last month in its full-year growth forecast — from 6.1% projected earlier, to 5%. The NSO’s estimate is a full 2 percentage points lower than the 7% figure that the Economic Survey had projected on the eve of the newly elected government’s annual Budget in July, reflecting the continued sharp slide in momentum. However, disconcertingly, even the latest growth assumption appears grounded more on optimism than on real hard data. Given that the pace of growth slumped to a six-and-a-half year low of 4.5% in the second quarter, thus dragging the first half’s expansion to 4.8%, the statistics office’s projection for the full year assumes that the economy will expand by a healthier 5.2% pace in the October-March six-month period. It is this premise that is hard to square with all the macro-economic data available so far, as well as the assumed estimates for the key expenditure components that together total up to the overall GDP. Take for instance the very cornerstone of demand in the economy, private consumption expenditure, the NSO’s projection assumes that consumers would go out and spend an additional ₹4.77 lakh crore, or almost 12% more, in the second half, than what they had spent in the preceding six months. Not only do most high-frequency indicators, including automobile sales, belie this assumption, even the RBI’s consumer confidence survey points to a decline in non-essential consumption compared to a year ago.
The NSO’s estimates also paint a picture of a distinct uptick in the final six months of the current fiscal in a key sector. Manufacturing, which contracted 0.2% in gross value added terms in the first half, is now posited to turn around and post a 2% expansion for the full 12 months. This projected revival in the crucial job generating sector again appears premised more on wishful thinking given that industrial output data from October showed the sector having shrunk by 2.1% from a year earlier. With private investment activity still becalmed — full-year growth in Gross Fixed Capital Formation is estimated at just about 1% compared with 10% in the last fiscal — and a significant shortfall in revenue receipts leaving the government little room to bump up its own spending within the constraints of the budgeted fiscal deficit target, it may be time for radical solutions. And with the clouds of conflict darkening over the crucial energy supplying West Asian region, India’s economy will be even more vulnerable now to another oil price shock. Clearly, it is time to expedite tangible policy interventions.
