India: First advance estimates pegs GDP growth at 5% for FY20

  • India’s economy is forecast to grow 5% this fiscal, its slowest pace in 11 years, estimates released by the government on 7 Jan 20 showed, increasing pressure on finance minister Nirmala Sitharaman to announce measures to revive demand and boost investments in the upcoming budget.
  • The projected growth rate of gross domestic product (GDP) in FY20 is the lowest since FY09, the year of the global financial crisis, when GDP grew 3.1%.
  • It reflects a sharp decline from 6.8% in FY19 as the economy is hit by a broad-based slowdown, fragile consumer sentiment and stagnant investments.
  • The first advance estimates released by the National Statistical Office (NSO) on 7 Jan 20 suggest a tepid recovery in second half of the fiscal with implied growth at 5.2% against 4.8% recorded in the first half for an overall 5% rise in GDP.
  • “It gives a big jolt to the ambition of making India a USD5tr economy by 2024-25. It is becoming harder to do so,” former finance secretary SC Garg said.
  • The CSO estimate is in line with the Reserve Bank of India’s projection of 5% growth and substantially lower than the 7% given by the Economic Survey for FY20. Gross value added (GVA) growth is seen at 4.9% against 6.6% in FY19.
  • Nominal GDP growth, without adjusting for prices, is estimated at 7.5% — a 42-year low according to SBI — well below the 11.2% recorded in FY19, which suggests muted corporate performance and subdued tax collections, and will add to fiscal pressure.
  • The government has already announced a number of measures to prop up the economy, including a sharp cut in corporate tax rate, support for stalled housing projects and INR102tr plan for infrastructure, but experts have asked for more in the upcoming budget.
  • Private consumption, which is the prime driver of the economy with about 60% share, is likely to grow at 5.8% this fiscal, down from 10% in the previous year.
  • Gross fixed capital formation, a measure of investments, is estimated to rise less than 1% in FY20, a collapse from near 10% rise in FY19.

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