We're slowing! Jaitley accepts reality, cuts FY18 GDP growth projection to 6.5%

India's FY18 GDP growth estimated at 6.5% says CSO data

India's GDP expected to grow at 6.5% in FY18; slower than 7.1% in FY17

In September quarter, the economy expanded by 6.3 per cent, after nosediving to a three-year low of 5.7 per cent GDP growth in the June quarter after being impacted by the roll out of the goods and services tax (GST) and the lingering effect of demonetisation could also be seen on the projection. Given the tepid growth estimates from agriculture, it gives us a feeling that the budget 2018 will have a higher focus on agriculture and rural economy. This would also jeopardise finance minister's target of bringing down the fiscal deficit to 3% of GDP by 2018-19.

According to Aditi Nayar, Principal Economist at ICRA: "The advance estimates for the full year have been based on limited data, which would be available for a period of 6-9 months for different sectors". The growth in the manufacturing sector is expected to be at 4.6% this year as against 7.9% in 2016-17.

Ahead of the GDP advance estimate numbers, India benchmark equity indices closed at record closing highs, posting their fifth consecutive weekly gain, as financials and metal stocks rose tracking global markets on strong economic data. While GDP calculates the value addition in the manufacturing sector, IIP only calculates volume growth, thus making it hard to compare the two sets of data.

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Gross Value Added: The GVA growth is expected to fall to 6.1%, much lower than the 6.7% growth projected by Reserve Bank of India in its latest bi-monthly monetary policy review on 6 December.

However, there is a difference between the way manufacturing data is calculated in the GDP and the IIP.

The slowdown is related to the poor performance in agriculture, manufacturing and construction sectors where the growth data hovered between 2.1 percent to 4.6 percent only.

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Electricity and trade & hotels sectors are the only ones that are expected to grow at a faster pace in FY18 compared with the previous financial year, at 7.5% and 8.7% respectively.

The Gross Domestic Product (GDP) was 7.1 percent in 2016-17 and 8 percent in the preceding year.

"It is heartening that gross fixed capital formation is on a recovery path, as a turnaround in investments is imperative for a sustained recovery to take hold".

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The government's statistics wing will have data only for additional one or two months than what it had for its second quarter (July-September) GDP estimate to make the full-year GDP growth projection.

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