Economic Survey: GDP growth projected at 7 per cent for 2019-20: Crude Oil Prices Unlikely to Be Higher

DESPITE macroeconomics suffering jolt for three months due political uncertainty prior to Parliamentary elections, India’s economic growth is predicted to be 7 per cent in the current financial year. India continues to remain the fastest-growing major economy in the world in 2018-19, despite a slight moderation in its gross domestic product (GDP) growth from 7.2 percent in 2017-18 to 6.8 per cent in 2018-19, says the Survey. As per the survey, GDP growth for the year 2019-20 is projected at 7 per cent, reflecting a recovery in the economy after a deceleration in the growth momentum throughout 2018-19.”The growth in the economy is expected to pick up in 2019-20 as macroeconomic conditions continue to be stable while structural reforms initiated in the previous few years are continuing on course. However, both downside risks and upside prospects persist in 2019-20,” it said.The survey, meanwhile, retained the fiscal deficit at 3.4 per cent of the GDP for the current fiscal, the same as projected in the revised estimate of the interim Budget 2019-20.It was tabled by Finance Minister Nirmala Sitharaman ahead the presentation of the General Budget. The Economic Survey says the Indian economy is expected to rebound from a five-year low to 7 per cent this year, now needs to shift gears to accelerate and sustain a higher growth rate to become a $5 trillion economy by 2024-25.Investment rate, which was been declining from 2011-12, seems to have bottomed out, and is expected to pick up in consumer demand and bank lending. However, economic slowdown impacting tax collections and rising state expenditure on farm sector may put strains on the fiscal front as per the survey.The real Gross Domestic Product (GDP) growth, which slowed to a five-year low of 5.8 per cent in the first three months of 2019 — well below China’s 6.4 per cent — is expected to rise to 7 per cent in the fiscal year 2019-20 that started in April. The GDP growth was 6.8 per cent in the previous 2018-19 fiscal year, down from 7.2 per cent in 2017-18.The expansion in the economy will be driven by investment. Authored by Chief Economic Adviser Krishnamurthy Subramanian, the survey stated that investment (especially private) is the ‘key driver’ that boosts demand, creates capacity, increases labour productivity, introduces new technology, allows creative destruction and generates jobs. Oil prices, the Economic Survey 2018-19 said, will decline in current fiscal, pushing consumption. Consumption accounts for about 60 per cent of the GDP.“However, downside risks to consumption remain. The extent of recovery in the farm sector and farm prices will decide the push to rural consumption, which is also dependent on the situation of monsoon,” it said adding that some regions are expected to receive less than normal rains, which could prove to be detrimental for crop production.“If the impact of stress in the non-banking financial company (NBFC) sector spills over to this year as well, it may lead to lower credit offtake from NBFCs, which may dampen growth in consumption spending,” it said.The survey suggested policies to unshackle micro, small and medium enterprises (MSMEs) to grow, create jobs and enhance productivity. It also called for reorienting policies to promote young firms which have the potential to become big, rather than MSME firms which remain small. The survey flagged the need to prepare for the ageing of the population, necessitating more healthcare investment and raising the retirement age in a phased manner.Low pay and wage inequality remain serious obstacles towards achieving inclusive growth. Therefore, legal reforms, policy consistency, efficient labour markets and use of technology should be government’s focus areas.