The Indian economy, marred by the twin policy blow of demonetization and implementation of the new goods and services tax (GST), is expected to decelerate to 6.5% in 2017-18 from 7.1% in 2016-2017. In the first half (April-September) of the financial year ending 31 March, the economy grew at 6%, indicating that it will accelerate in the second half (October-March) of the financial year.
All the Data which have been released by the Central Statistics Office (CSO) showed that the manufacturing sector is likely to grow at 4.6%, compared with 7.9% in the previous year and the agriculture sector is expected to grow at 2.1% in FY18, slower than 4.9% a year ago. Hotel sectors, Electricity, and trade sectors are the only areas that will grow at a faster rate of 8.7% and 7.5% in FY18 than in FY17.
The gross domestic product (GDP) at market prices or the nominal GDP is expected to grow at 9.5% against 11.75% assumed in this year in 2017-18 budget presented last year. This will make it difficult for the central govt. to achieve the fiscal deficit target of 3.2% of GDP in a tight fiscal year.
The Union Budget 2018 to be presented by finance minister Arun Jaitley on 1st February will use the nominal GDP as the benchmark for most indices. The implementation of the goods and services tax (GST) and the lingering impact of demonetization defined economic discourse in India in 2017.
The country saw a 30-notch jump up the World Bank’s Ease of Doing Business ranking to 100 among 190 countries. Prime Minister Narendra Modi invalidated Rs500 and Rs1,000 banknotes in November 2016, pulling out approximately 86% of currency in circulation by value, but it was in the early part of 2017 that the effect of the move on jobs, prices, and demand was truly felt.
The government is still struggling to streamline the GST processes. The two consecutive disruptions due to policy changes brought down economic growth to a three-year low of 5.7% in the June quarter. Thanks to restocking by companies that had cut inventory in the run-up to GST, growth accelerated to 6.3% in the September quarter.
The Modi government runs the risk of marring its record of fiscal prudence in four successive annual budgets since it assumed office if it opts for aggressive spending in its last year in office. But the real challenge before the government will be to sustain the pace of structural reforms during the final leg of its term before upcoming general elections in 2019.
Privatization of Air India, Public sector banking consolidation, more reforms in labor and land laws and agriculture are issues that cannot be postponed. Immediate attention must be given to the administrative reforms, as the government has delivered little despite its promise of “minimum government, maximum governance.” So let’s wait for some more days or months to see the result with better expectation.
