- It's official: The government on Tuesday released the first advance estimates of gross domestic product (GDP) growth for 2019-20. The economy will grow at 5% this year, a massive downgrade from the 7% projected by the Economic Survey last year and much lower than the 6.8% growth in the previous year.
- No surprise: The economy grew at a six-year low of 5% and 4.5%, respectively, in the quarters ending June and September. The numbers had forced many institutions to drastically reduce their growth projections. The Reserve Bank of India had also reduced its estimate to 5% from its initial estimate of 7.4%.
- The bad news: The numbers also show that the growth in what we collectively spend on goods and services (Private Final Consumption Expenditure), a reflection of the demand in the economy, is likely to be just 5.7% compared to 8% last year. Private consumption contributes nearly 60% to India's GDP and its collapse is said to be the biggest reason behind the current economic slowdown. Though the expenditure made by the government will grow at a higher rate (10.5%) than last year (9.2%), the investments made by businesses, a key driver of economic growth, will grow by less than 1% compared to 10% last year.
- The good news: The 5% figure for the full year implies that growth will pick up momentum in the second half of the year to 5.25% and also that some of the steps taken to boost consumption and private investment may be beginning to show results.
- So what? The number is important for the Budget as it will decide what the government can hope to earn and how big a hole it will see in its finances at the end of the year.
- What next? The second advance estimates will be released after the presentation of the Budget on February 1 and these numbers may change
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