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GDP first advance estimate: CSO pegs FY18 growth at 6.5%; why forecast is an eye-opener for Narendra Modi govt

The GDP growth recovered from its three-year low of 5.7 percent in June quarter to 6.3 percent in the September quarter.

FP Staff January 05, 2018 17:33:31 IST
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GDP first advance estimate: CSO pegs FY18 growth at 6.5%; why forecast is an eye-opener for Narendra Modi govt

Highlights

19:11 (ist)

At present, we expect GVA growth to rise to around 6.7% in Q3 FY2018, sasy Aditi Nayar, Principal, Economist ICRA
 

The advance estimates for the full year have been based on limited data, which would be available for a period of 6-9 months for different sectors. 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. 

Accordingly, the advance estimates for GDP and GVA growth appear to be understating economic expansion for FY2018, in our view. 
 
At present, we expect GVA growth to rise to around 6.7 percent in Q3 FY2018 and a sharp 7.5 percent in Q4 FY2018. For FY2018 as a whole, we continue to expect GVA and GDP growth to print at 6.5% and 6.7 percent, respectively, higher than the advance estimates of 6.1 percent and 6.5 percent.  
 
Sectors which may grow at a higher pace in FY2018 relative to the advance estimates include mining and quarrying, manufacturing, construction, trade hotels etc., and financial, real estate and  professional services.
 
The healthy uptick in volumes displayed by many sectors in November 2017, is expected to strengthen in the remainder of FY2018, benefiting from a favourable base effect and a 'catch up' following the subdued first half.

Accordingly, manufacturing is likely to display healthy expansion in volumes in H2 FY2018, which should result in a substantial improvement in capacity utilisation on a YoY basis. However, the elevated commodity prices, especially fuel prices, are likely to inflate input costs, exerting pressure on manufacturing margins and tempering the improvement in GVA growth for this sector.
 
The full impact of the unfavourable kharif harvest on agricultural GVA would be seen in Q3 FY2018. While rabi sowing has been slightly lower than the year-ago levels, the below-normal post monsoon rainfall and y-o-y decline in reservoir levels do not portend a sharp improvement in yields.

Therefore, the pace of GVA growth of agriculture, forestry and fishing is expected to record a moderate uptick in Q4 FY2018. We expect growth of agriculture, forestry and fishing in FY2018 to be in line with the advance estimate of 2.1 percent.
 
After recording a healthy performance in Q2 FY2018, the volume growth of coal, natural gas and electricity generation have dipped sharply in October-November 2017.  However, the rally in commodity prices suggests an uptick in earnings and GVA growth for mining and quarrying in Q3 FY2018. 
 
While consumer sentiment is yet to recover, the construction sector is likely to report a base effect-led improvement in H2 FY2018. 
 
Service sector growth is also expected to improve in H2 FY2018, benefitting from a favourable base effect as well as back-ended spending by the state governments.

The available data for the GoI for October-November 2017 indicates a sharp growth in total expenditure, which would support service sector expansion in Q3 FY2018. However, the limited fiscal space available to the GoI for incurring additional expenditure may weigh upon service sector growth in Q4 FY2018.

LIVE NEWS and UPDATES

Jan 05, 2018 - 17:33 (IST)
Chief Statician TCA Anant holds presser for first advance estimate for GDP 2017-18

Jan 05, 2018 - 19:11 (IST)

At present, we expect GVA growth to rise to around 6.7% in Q3 FY2018, sasy Aditi Nayar, Principal, Economist ICRA
 

The advance estimates for the full year have been based on limited data, which would be available for a period of 6-9 months for different sectors. 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. 

Accordingly, the advance estimates for GDP and GVA growth appear to be understating economic expansion for FY2018, in our view. 
 
At present, we expect GVA growth to rise to around 6.7 percent in Q3 FY2018 and a sharp 7.5 percent in Q4 FY2018. For FY2018 as a whole, we continue to expect GVA and GDP growth to print at 6.5% and 6.7 percent, respectively, higher than the advance estimates of 6.1 percent and 6.5 percent.  
 
Sectors which may grow at a higher pace in FY2018 relative to the advance estimates include mining and quarrying, manufacturing, construction, trade hotels etc., and financial, real estate and  professional services.
 
The healthy uptick in volumes displayed by many sectors in November 2017, is expected to strengthen in the remainder of FY2018, benefiting from a favourable base effect and a 'catch up' following the subdued first half.

Accordingly, manufacturing is likely to display healthy expansion in volumes in H2 FY2018, which should result in a substantial improvement in capacity utilisation on a YoY basis. However, the elevated commodity prices, especially fuel prices, are likely to inflate input costs, exerting pressure on manufacturing margins and tempering the improvement in GVA growth for this sector.
 
The full impact of the unfavourable kharif harvest on agricultural GVA would be seen in Q3 FY2018. While rabi sowing has been slightly lower than the year-ago levels, the below-normal post monsoon rainfall and y-o-y decline in reservoir levels do not portend a sharp improvement in yields.

Therefore, the pace of GVA growth of agriculture, forestry and fishing is expected to record a moderate uptick in Q4 FY2018. We expect growth of agriculture, forestry and fishing in FY2018 to be in line with the advance estimate of 2.1 percent.
 
After recording a healthy performance in Q2 FY2018, the volume growth of coal, natural gas and electricity generation have dipped sharply in October-November 2017.  However, the rally in commodity prices suggests an uptick in earnings and GVA growth for mining and quarrying in Q3 FY2018. 
 
While consumer sentiment is yet to recover, the construction sector is likely to report a base effect-led improvement in H2 FY2018. 
 
Service sector growth is also expected to improve in H2 FY2018, benefitting from a favourable base effect as well as back-ended spending by the state governments.

The available data for the GoI for October-November 2017 indicates a sharp growth in total expenditure, which would support service sector expansion in Q3 FY2018. However, the limited fiscal space available to the GoI for incurring additional expenditure may weigh upon service sector growth in Q4 FY2018.

Jan 05, 2018 - 18:50 (IST)

Economic Indicators

The advance estimates for 2017-18 are based on economic indicators for the first 7 or 8 months of this financial year, such as Index of Industrial Production of first seven months of the financial year, financial performance of listed companies in the private corporate sector available up July-September quarter, first advance estimates of crop production, accounts of central and state governments, information on indicators like deposits and credits, passenger and freight earnings of railways, passengers and cargo handled by civil aviation, cargo handled at major sea ports, sales of commercial vehicles etc. available for first eight months of the financial year, the CSO said.

Jan 05, 2018 - 18:45 (IST)

Financial year 2017-18 growth picture

Jan 05, 2018 - 18:42 (IST)

GDP will become more robust, says NITI Aayog

Jan 05, 2018 - 18:39 (IST)

Jan 05, 2018 - 18:38 (IST)

Jan 05, 2018 - 18:36 (IST)

Jan 05, 2018 - 18:36 (IST)

Jan 05, 2018 - 18:35 (IST)

The Central Statistics Office (CSO) on Friday pegged first advance GDP estimate for 2017-18 at 6.5 percent dragged down by lower growth in manufacturing and agriculture sectors. Most of the economists had predicted a lower forecsast.

GDP first advance estimate CSO pegs FY18 growth at 65 why forecast is an eyeopener for Narendra Modi govt

Representational image. PTI

Real GDP or Gross Domestic Product (GDP) at constant (2011-12) prices in the year 2017-18 is likely to attain a level of Rs 129.85 lakh crore, as against the Provisional Estimate of GDP for the year 2016-17 of Rs 121.90 lakh crore, released on 31st May 2017.

The growth in GDP during 2017-18 is estimated at 6.5 percent as compared to the growth rate of 7.1 per cent in 2016-17, the CSO said.

Last year the government changed the presentation of Union Budget from February-end to 1 February that started the practice of unveiling advance GDP forecast in January. Last year the GDP growth came in at 7.1 percent for the full financial year.

This year the effects of demonetisation and GST are likely to influence the national income numbers in the third quarter. Most of the economist echo the view that the economy will grow at lower levels in the range of 6.5 to 6.7 percent.

For full coverage of Union Budget 2018, click  here.

 

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