GST impact to slowdown India's 2017-18 GDP growth to 6.5%

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The farm sector is set to grow at 2.1 percent against 4.9 percent last year while mining and quarrying will grow at 2.9 percent compared to 1.8 percent last year.

"Implementation of Goods and Services Tax (GST) and subsequent slowdown in the manufacturing sector is expected to drag down India's growth to 6.5 per cent in 2017-18", said the Government's official data which was released by Central Statistics Office (CSO) on Friday.

India's per capita income, a gauge for measuring living standard, is likely to rise to Rs 1.11 lakh in FY18 but the growth would be slower at 8.3% compared with 9.7% growth in 2016-17. The CSO estimates that the sector will grow by 4.6% in 2017-18 as against a growth of 7.9% a year ago.

"The advanced estimates for annual growth of 6.5% can be achieved if we have an average of 7% growth in the last two quarters of this fiscal", said Ranen Banerjee, Partner - Public Finance and Economy at PwC India.

"Anticipated growth of real GVA at basic prices in 2017-18 is 6.1 percent as against 6.6 percent in 2016-17".

He said that 6.5 per cent for the full year meant that Q3 and Q4 numbers will be far better than first half of the year. As the numerator swells and the denominator (GDP at current prices) shrinks, the fiscal deficit is likely to overshoot the target of 3.2 per cent in 2017-18 by a considerable margin. In the first half, GDP growth was only 6% because of the disruption caused by the goods and services tax (GST) and the lingering impact of demonetisation.

Past 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. Earlier, the country's GDP growth for the second quarter of the current fiscal that ended on September 30 was 6.3 per cent - up from 5.7 per cent reported during the first quarter of 2017-18.

The advance estimates have, however, been compiled on the basis of actual data of the last seven months (April-October) in the fiscal 2017-18 and extrapolated for the next five months (November-March) on the basis of that.

"Anticipated growth of real GVA at basic prices in 2017-18 is 6.1% as against 6.6%t in 2016-17". The CSO could actually estimate a faster GVA expansion in the final two quarters, implying but for slower-than-expected GST tax revenue collections, overall growth could have been faster.

Analysts will also keenly examine the data used for calculating the advance GDP estimates.

Debroy said that several indicators had already shown signs of improvement, "whether it is the PMI (Purchasing Managersa¿ Index), the high growth in eight core-sector industries or data on auto sales".

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