GDP growth in slow lane likely

These days, economic growth has taken centrestage in political discourses. So are the Gross Domestic Product (GDP) numbers. While the ruling dispensation has been going on a chest-thumping exercise whenever GDP numbers looked up, its political rivals are leaving no stone unturned to criticise the government whenever the numbers ended up on a weaker side. 

For instance, India’s economic growth beat expert estimates by a mile and clocked 8.2 per cent upswing in the first quarter of the current financial year i.e April to June 2018. Buoyed by this, the Modi government lambasted critics in no uncertain terms. It also took those who blamed demonetisation for slowdown in GDP to task, showcasing these numbers. But it is a different matter that these higher numbers came on a low base in the same period last financial year, when the side-effects of the ill-advised note ban were in full swing.

But here is some bad news for the Modi government. A report by the State Bank of India (SBI) this week forecast that the GDP growth in second quarter which has ended in September is likely to decelerate to 7.5-7.6 per cent from the preceding quarter’s high.  The SBI Ecowrap report said the SBI Composite Leading Indicator (CLI), a basket of 21 leading indicators for September quarter, showed a marginal decline. Based on it, the report projected low GDP growth for the quarter under review. It estimated Gross Value Added (GVA) growth to be around 7.3-7.4 per cent. GVA is the GDP growth minus subsidies and taxes, and it offers more accurate behaviour of the economy. However, we will know the real growth figures when Central Statistics Office (CSO) releases the estimates for GDP growth for July-September on this Friday.

But there is more disappointing news for the current dispensation at the Centre. Global rating agency Moody’s estimated that the country’s growth would slow down to 7.3 per cent in 2019 from its projected reading of 7.4 per cent this calendar year. In its recent report titled ‘Global Macro Outlook 2019-20’, the rating agency maintained that thanks to higher borrowing costs, domestic demand would decelerate, resulting in lower economic growth. It also expects the RBI to further raise key interest rates during 2019 to rein in inflationary pressures, which will further dampen domestic demand. “These factors will limit the pace of the Indian economy’s growth over the next few years, with real GDP growth of 7.3 per cent in 2019 and 2020, from around 7.4 per cent in 2018,” Moody’s said.

It goes without saying that the BJP-led Central government cannot afford slower growth at a time when it faces general elections scheduled for 2019 summer. Perhaps, that is the key reason why it has been pressurising the RBI to transfer some of its precious reserves to the government’s coffers so that the funds could be deployed for boosting economic growth. It may also nudge the Central bank not to hike interest rates before the key elections. But there is no guarantee that economic growth will accelerate even if the RBI toes the Centre’s line. Testing times for the BJP government on economic front!