India economy projected to grow at 5% in FY20

The country's economy is expected to grow at 5% in 2019-20, slowest in 11 years on the back of shockingly low forecast for manufacturing, construction and exports sectors, the first officially revised numbers released on Tuesday showed.

Prior to this, India's economy grew at a lower single digit of 3.09% in 2008-09 when the financial crisis gripped the world after the Lehman's collapse. India's economy had grown 6.8% last financial year.

The first advance estimate of GDP released by the Centre showed manufacturing is expected to grow at 2% in 2019-20, down from 6.9% last year, construction is estimated to accelerate at 3.2% compared to 8.7% in the previous year, while the exports is forecast to contract by 2% against a 12.5% growth a year ago.

The most appalling estimate was that of gross fixed capital formation (GFCF), which is a proxy of how much investment has taken place or expected in the economy, came at a meagre 1%, down from above 10% last year.

A 1% likely growth in GFCF is an indication that the government should not expect much from the investment side as capital formation in the economy has almost collapsed, and, it should increase spending to boost consumption.

Imports, too are estimated to contract by 5.9% in 2019-20, which is indicative of weak consumption demand in the economy.

But, the number, which has a direct bearing on fiscal deficit of the government – the nominal GDP, arrived at after adding inflation numbers to the real GDP, is forecast to growth at 7.5% in 2019-20, sharply down from 12.5% projected in the Union Budget.

Nominal GDP estimated at Rs 204 lakh crore, lower than the 211 lakh crore projected in the budget. This changes the fiscal math of the Centre and puts it at 3.44% from 3.3% projected earlier.

“GDP is estimated to be higher in the second half of the fiscal with the low base effect also being an important factor. Consumption will be an important component in H2-FY20 to drive the overall GDP growth given the steep decline in case of GFCF,” Carre Rating said after the numbers were out.

The data showed private consumption grew by only 5.79%, much lower than last year when it had grown at 8.09%. Private consumption is driven by mostly the income and credit growth.

The Centre's decision to cut expenditure of ministries and departments to 25% of the budget estimate in January -March quarter from the earlier 33%, is expected to hurt the economic growth further.

The second revised estimate of the economy, based on data collection for 11 months of the financial year, will be released on February 28.