The latest release of CSO data on advanced estimates of GVA/GDP for FY17 has put estimated real GDP growth for the year at 7.1%, 0.5% lower than the previous year.
As these estimates are based on the data prior to the commencement of the demonetisation exercise, it is likely that the full year GDP growth rate may be marginally lower in view of slowdown in cash based sectors.
In first half of the current fiscal, the country has grown by 7.2% and hence to achieve a 7% growth in the full year, the country must grow at 6.8% in the second half.
This is a probable scenario if the performance of the economy in fourth quarter takes place on a growth momentum mode.
It is heartening to note that agriculture sector is projected to achieve 4.1% growth rate in FY17 as against a meager 1.2% in last year. Good agriculture production has a significant contribution to income and employment generation, lower pressure on migration and improving the quality of life in the rural areas which would ultimately enhance rural consumption.
For the industrial sector, a look at some of the relevant sectors would reveal the intensity of the driving forces. The projected growth at (-) 1.8% in mining and quarrying sector against a growth of 7.4% in the previous year is worrisome. The major two components in mining, namely coal and iron ore are dependent on the demand from the end using sectors, steel and power.
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The fresh activities in the auctioned mines have just started and the pace of the activities would be driven by demand from the end using sectors. The demand for coal from the power sector (especially from the industry sector) has slowed down resulting in staggering of the FSAs with CIL.
In manufacturing, around 72% estimates are based on the performance of private corporate sector (listed companies) and around 23% is accounted for by the performance of the quasi corporate and unorganized sector as obtained from IIP index on manufacturing. As manufacturing IIP has grown by (-) 1.0% during April-October’16, the extrapolated projection level for this sector is subdued and may have pulled down the total GVA growth in manufacturing at 7.4% against 9.3% achieved in last year.
It may also be mentioned here that compared to last year’s negative growth, the WPI in manufacturing has grown by 2% in April-November’16 period and this has positively contributed to GVA growth in manufacturing.
Construction sector has been projected to experience one of its lowest growths in the recent past at 2.9%, a clear 1% drop from the previous year.
The latest sops announced for personal loan rates and subsidised loans for affordable housing sector are definite steps to rejuvenate the real estate sector in fourth quarter and may pull up the depressing growth rate a bit upwards. The highest growth rate has been predicted for financial, insurance, professional services at 12.8% which is nearly double the rate achieved in the last year.
The industrial growth in the country comprising of mining, manufacturing, electricity, gas and water supply and construction segments is crucially dependent on investment reflected in gross fixed capital formation as a percentage of GDP.
At constant prices (2011-12 prices) the GFCF as percentage of GDP has progressively come down from 32.3% in FY15 to 31.2% in FY16 and has been projected to reach 29.1% in the current fiscal.
We had earlier discussed that a minimum 5% growth in GFCF/GDP ratio from the current level of 29% is needed primarily targeting the infrastructure sector.
The composition of GFCF needs to be oriented towards energy, railways, roads, irrigation, ports, urban development, airports, storage and warehouses, real estate segments in order to make a positive impact on the growth of critical sectors like steel.
The consumption of steel in the country in the first 9 months of the current year has experienced a growth of 3.3%, while the production of crude steel has grown by 8.5%. In order to stimulate more demand to absorb the likely expansion of fresh capacity, the investment scenario has to perk up significantly in the coming months.
