Despite the slowdown in India’s gross domestic product (GDP) growth to 5.7 per cent in the first quarter of this fiscal year, the State Bank of India’s Ecoflash report says it is expecting India to clock an annual growth rate of 7 per cent.
It is not that the economic environment will improve drastically. In fact, the State Bank of India’s economists believe that second-quarter growth numbers are likely to be muted, almost like that of the first quarter – that is, below 6 per cent because it expects agriculture growth to be muted given that the rainfall in the first three months of the monsoon season was lagging in key foodgrain-producing states like Uttar Pradesh, Punjab, Haryana and Madhya Pradesh, and the continuous sluggish growth in manufacturing and mining sectors. Even for quarters three and four, the economists expect GDP growth numbers to be below 6.5 per cent.
Also, export growth, which fell drastically in the last quarter, is unlikely to see any significant improvement as the uncertainty of the goods and services tax (GST) regime continues. Its effect is likely to persist for two more quarters.
If that is indeed the case, how come the GDP is expected to register 7 per cent growth rate overall? It will happen if Central Statistics Office (CSO) opts for a downward revision of last fiscal’s data. The CSO usually revises GDP provisional data two times before it takes shape. “And the revision (mostly upwards) in annual data has been in the range of 20-60 bps (basis points) in the past 6 financial years (though in FY14 GDP it got revised downward by 50 bps),” says the Ecoflash report.
The report further notes that the revision in quarterly GDP is more abrupt and large, ranging from 49 bps to as much as 124 bps in the last two years (fiscal years 2015 and 2016). “For FY17, CSO annual projection was 7.1 per cent. We believe that when the final data will come, it would be possibly around 50-60 bps less than the provisional data. Under such a scenario, our projection of 6.5 per cent for FY18 will thus automatically be revised upwards to 7.0 per cent,” it adds.