The new government will get its first reality check by the end of this month when the gross domestic product (GDP) numbers are likely to show declining economic growth.
Most economists say GDP growth will come down to an eight-quarter low of 6.1-6.3 per cent in the fourth quarter of 2018-19, lower than even the 6.5 per cent indicated in the second advance estimates.
For 2018-19, economists project economic growth at 6.9 per cent, which could accelerate at most to 7.3 per cent or go down to 6.8 per cent, depending on the unfolding economic situation. The only exception to a broad consensus for the fourth quarter is D K Srivastava, chief policy advisor at EY, who forecast economic growth at 7 per cent.
GDP grew at 8 per cent, 7 per cent, and 6.6 per cent in the first, second and third quarters, respectively, of 2018-19. It was in the first quarter of 2017-18 that economic growth fell below 6.1 per cent to 6 per cent.
When asked why he was projecting growth to be much higher than what was deduced from the second advance estimates, even as the full year's growth is close to the official projections, he said the quarter-wise numbers would be revised when the data was released on May 31.
He gave a wide range of projections for the current year at 6.8-7.3 per cent. “If no stimulus comes, economic growth may slow to 6.8 per cent, but if stimulus comes it might go up to 7.3 per cent,” he said.
He said while the RBI cut policy rates and one more might be on the cards, these were not enough. On the other hand, fiscal stimulus seems difficult since the government does not have the space on the tax receipts side.
However, the government has to find ways to propel the economy and one of the measures could be to adopt counter-cyclical measures and let the fiscal deficit widen by up to 1.5 per cent of the target at the time of slowdown, he said.
Devendra Pant, chief economist at India Ratings, said fiscal stimulus, if required, needed to be given in such a way that it went out of the system after the economy recovered. That did not happen at the time of the Lehman crisis, he recalled.
Shubhada Rao, chief economist at YES Bank, said the government’s immediate task at hand would be to reinvigorate the rural economy, rev up consumption, and trigger the private sector’s investment appetite while maintaining fiscal rectitude.
“A set of near-term and medium-term steps need to be emphasised. To enable cost-effective financing of growth, the financial sector needs renewed focus. To summarise, the incumbent government has to devise a 100-day, one-year and a medium-term agenda,” she said.
Ranen Banerjee, leader, public finance and economics, PwC India, said even after the goods and services tax settling down and the low-base effect, GDP growth was likely to be 7-7.1 per cent in the current fiscal year.
Another set of data that will give the government an assessment of the economic reality will be the fiscal deficit numbers, slated to be released on May 31. SBI group Chief Economist Soumya Kanti Ghosh said it would be difficult to stick to the target of 3.4 per cent of GDP for FY19. It seems it would be 3.5 per cent, he said.
The fiscal deficit in the current fiscal year is at 3.5 per cent. “As long as the government is transparent about this and does not hide it below the line, the markets would not be worried,” Ghosh said.