Growth in second half may slide to 6.8% from the 7.6% clocked in the first six months

The government has projected GDP growth for the full year 2018-19 to come in at 7.2%, which implies that growth in the second half of the year would slow significantly to 6.8% from the 7.6% clocked in the first half of the year, according to the first advance estimates of national income for 2018-19 released by the Ministry of Statistics.

This growth estimate for the entire year is slower than the Reserve Bank of India’s forecast of 7.4%.

‘Conservative estimates’

Economists, however, feel that the government’s prediction for the second half of the year is too conservative.

“Overall, it does seem to be a little on the lower side,” D.K. Srivastava, chief policy advisor, EY India, said.

“There is an indication of a slowdown in the second half, but not for such a slowdown. Some of the slowdown seems to be in the services sector, particularly in those sectors with a larger weight such as transport and communications, and financial services. Otherwise, there doesn’t seem to be a reason for the slowdown. A growth rate of 7-7.2% for the second half might have been more realistic,” he said.

The advance estimate says that the growth in the agriculture sector would be 3.8% in 2018-19, faster than the 3.4% in the previous year. The manufacturing sector is estimated to grow at 8.3% in 2018-19 compared with 5.7% in 2017-18.

However, this represents a dramatic slowdown in the manufacturing sector in the second half of the year, to 6.3% from 10.3% in the first half.

Construction set to grow

The construction sector, however, is expected to witness an acceleration in the second half of the year.

For the entire year, the growth has been estimated at 8.9%, with 8.3% having been recorded in the first half of the year. This implies a growth of 9.5% in the second half.

The transport and communications services sector is expected to grow at 6.9% in 2018-19, down from 8% in the previous year.

The financial services sector is set to grow at 6.8% in 2018-19 from 6.6% in 2017-18.

“The estimates seem to be on the conservative side and the final numbers would depend on three factors — how the oil prices pan out and hence, inflation, the government spending in the pre-election last quarter and the mood of the economy post conclusion of U.S.-China trade negotiations,” Ranen Banerjee, partner & leader – public finance and economics at PwC India, wrote in a note. “The nominal GDP has been estimated at 12.3% that is surprising given the muted inflation outlook.”