The SBI lowered the economic growth forecast to 4.6 per cent from the earlier 5 per cent. This estimate however has a shelf-life of only two months and is only used as an input for budget arithmetic, it added.

The current growth slowdown is reflected not just in the first advance estimates of GDP growth in fiscal 2020 pegged at 5 per cent, but also in the estimate of gross value added (GVA) pegged at 4.9 per cent.

Asc per official estimates, GVA, which is GDP minus net taxes, is expected to grow at 4.9 per cent in 2019-20 compared to 6.6 per cent a year ago. GVA is a more realistic guide to measure changes in the aggregate value of goods and services produced in an economy.

The estimates are based on the growth numbers of the first two quarters of the current fiscal as well as other higher frequency data.

India’s gross fixed capital formation has been estimated at 1 per cent, against the 10 per cent of the previous year.

According to thee Statistics Ministry data, while private final consumption expenditure (PFCE) in 2019-20 may grow at 5.8 per cent, against 8.1 per cent in fiscal 2019, the gross fixed capital formation (GFCF) - a metric to measure corporate investment activity - is expected to come in at 1 per cent against 10 per cent in the previous year.

Government final consumption expenditure (GFCE), or government expenditure is expected to grow at 10.5 per cent in 2019-20, against 9.2 per cent a year ago.

The estimates say, farm sector is set to grow at 2.8 per cent, against 2.9 per cent last year, while the mining sector is likely to grow at 1.5 per cent, as compared 1.3 per cent (y-o-y).

“The FY20 GDP estimate as released by the CSO pegs the GDP growth rate at 5 per cent (we had revised our GDP projection to 5 per cent in November 19), a 11-year-low. Nominal GDP growth at 7.5 per cent is a 42-year-low. For FY20, the budgeted nominal GDP growth rate was 12 per cent which has now been revised downwards to 7.5 per cent. Based on this GDP revision, the impact on fiscal deficit is around 12 basis points for FY20,” SBI Ecowrap said.

“The CSO will release the first revised estimate of FY17, FY18 and FY19 on January 31 and based on that, we believe that GDP and GVA for FY20 would be revised further downwards in 2nd advance estimate for FY20 on February 28 and on May 29. We are now revising our GDP projection for FY20 to 4.6 per cent based on current available trends. It is likely that the 40 bps downward revision could be spilt over February and May in equal proportion,” it said.

Factors like Government expenditure are the key determinants for overall growth outlook for FY20 as variations in government spending have a spill over effect on other sectors. In Q2, government spending alone accounted for 40 per cent of the entire quarter’s growth (1.9 per cent out of 4.5 per cent headline GDP growth), even as share in GDP was lower than 13 per cent, it said.

“However, this momentum is unlikely to persist given that the government has already announced its intention of cutting expenditure. The key to a quick recovery is consumption. The CSO estimates reveal an impending consumption recovery but we believe the quadruple balance sheet problem (Banks, Corporates, NBFCs and Households) is creating space for deleveraging that will delay a consumption pick up and also an investment pick up.”

The current uptick in oil prices could create a slowdown in discretionary consumption too.

“Specifically, the IBC resolution has been prolonged and we understand as companies are admitted into liquidation, the employees on the rolls of the company are only cumulatively compensated till the resolution process is completed, while the contractual employees are downsized. This also results in reduced remittance flows as contractual employees could head back to place of origin. This could also act as a constraining factor on consumption growth and thus it is essential that we also find a quick resolution (average resolution time is of 324 days as on March 2019). We now believe that the RBI projection of a 5.9-6.3 per cent GDP for FY21 could be on the higher side. We could be now staring at a sub 6 per cent growth for 2 successive years!”

With the 2019-2020 GDP growth rate projected to fall to 5 per cent, industry body Ficci on Wednesday suggested relaxing the fiscal deficit target as a measure to boost demand, saying infusion of capital into the economy is imperative to boost growth. Ficci President Sangita Reddy said that with the advance GDP estimates projecting the current fiscal’s GDP growth at 5 per cent, it is a necessity now for the government to look at measures to infuse capital into the economy in a systematic way.

Indo-Asian News Service