GVA must expand at 6.9% in Q4 to meet CSO's FY18 projection of 6.4%

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The Central Statistics Office (CSO) has upped its forecast for gross value added (GVA) to 6.4 per cent in 2017-18 from 6.1 per cent.


Quarterly estimates showed that GVA grew at 6.7 per cent in the December quarter (Q3). This means the economy will have to expand at 6.9 per cent in Q4 to meet the CSO’s projection.


A closer look at the numbers reveals that government spending is likely to do the heavy lifting in Q4. Working backwards from the CSO’s estimate, it can be deduced that public administration, defence and other services, which largely connotes government spending, is projected to grow at 15 per cent in Q4, adding about 2 percentage points to growth.


While the central government has room for spending, it has spent only 82 per cent of its non-interest revenue expenditure. A shortfall in goods and services tax (GST) collections could also affect further spending.


As far as capital expenditure is concerned, the Centre spent 97 per cent of the Revised Estimates (RE) for 2017-18 by January, leaving little room for more spending. As such, state governments could ramp up spending in Q4.


Gross fixed capital formation, which connotes investment, is expected to slow to 9.9 per cent in Q4 from 12 per cent in Q3.


ICRA said, “Capital expenditure and net lending would need to contract by 89 per cent, year on year, during February-March to remain within the RE for such spending, which may curtail the pace of economic growth in that quarter. If some short-term loans, such as working capital loans, are repaid in the last two months of 2017-18, some headroom may emerge for additional capital spending.”


“While low headroom for capital spending by the Centre may curtail improvement in growth in the ongoing quarter, back-ended spending by state governments may support economic activity,” ICRA’s Aditi Nayar said.


Manufacturing, trade, hotels, transport and communication are expected to contribute around 1.4 percentage points each to growth in Q4. Manufacturing is expected to grow at 7.2 per cent in the ongoing quarter, down from 8.1 per cent in Q3. In Q1, manufacturing activity had contracted by 1.8 per cent against the backdrop of the GST roll-out.


Nayar said it was possible that the rise in commodity and fuel prices temper the earnings growth of businesses in various sectors in Q4.


Agriculture is expected to slow to 1.9 per cent in Q4, after growing at 4.1 per cent in Q3.


Private consumption is likely to remain muted in the Q4, growing at 5.6 per cent, at the same level as in Q3.


Perhaps, the muted growth reflects a change in the pattern of consumption in 2017-18, as economists said many households might have taken advantage of discounts that were offered prior to the introduction of the GST.

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