ECONOMY

Centre lowers economic growth forecast ahead of Budget

PTI11_30_2017_000053A Finance Minister Arun Jaitley | File

Move comes as businesses were hit by chaotic launch of GST last July

Ahead of the Union Budget, the Centre lowered its forecast for the current year’s economic growth as businesses were hit by the chaotic launch of new nationwide tax last July. The Budget will be presented by Finance Minister Arun Jaitley on February 1.

Finance Minister Arun Jaitley had earlier estimated the economy would grow around 7.5 per cent in the 2017/18 fiscal year, generating enough tax to keep the fiscal deficit at 3.2 per cent of GDP after meeting spending targets.

Gross domestic product is now estimated to grow an annual 6.5 per cent in 2017/18, slower than a provisional 7.1 per cent growth in 2016/17, Ministry of Statistics said in a statement. 

Most private economists have pared the growth forecast to 6.2 to 6.5 per cent for this fiscal year, citing the teething troubles faced by businesses during the roll out of a goods and services tax (GST).

“The GST transition impact is clearly visible,” said Shubhada Rao, chief economist at Yes Bank. Sectors such as manufacturing and hotels were badly hit, she said. 

Complex rules and technical glitches meant the GST, aimed at transforming India’s 29 states into a single customs union, hit millions of small businesses.

Manufacturing is now forecast to grow at 4.6 per cent this fiscal year compared with 7.9 per cent growth in the previous year, the statement said. Farm output may slow to 2.1 per cent from 4.9 per cent. 

Finance ministry officials earlier said slower economic growth was likely to hit revenue collections this year, forcing them to resort to borrow from the market to meet spending targets.

Analysts said despite the lower economic growth, the Reserve Bank of India (RBI) was expected to hold policy rates steady after a recent uptick in retail inflation, which touched 4.88 per cent in November, its steepest level in 15 months.

“Given the recent uptick in inflation pressure and with inflation likely to remain around 5 per cent going ahead, we expect the RBI to be on hold with a guarded stance even though growth estimate has disappointed slightly,” Rao said.

The statistics office will release economic growth data for the October-December quarter on February 28, along with revised full-year growth estimates. 

This browser settings will not support to add bookmarks programmatically. Please press Ctrl+D or change settings to bookmark this page.

Related Reading