GDP data points to weak investment in FY20

NEW DELHI: The economy is forecast to grow at its slowest pace in 11 years in 2019-20, dragged down by anaemic manufacturing, slowing services sector growth, as well as sluggish investment and consumption. With the Union Budget less than a month away, the dismal forecast will add pressure on the authorities to revive the economy.The National Statistical Office on Tuesday forecast GDP growth to be 5% in 2019-20, slower than the previous year's 6.8% and in line with the RBI estimate. If this growth is realised, then it would be the slowest since 3.1% posted in 2008-09 in the aftermath of the global financial crisis. Nominal GDP , which is the market value of goods and services produced in the economy but not adjusted for inflation, is estimated to grow at a42-year low of 7.5%.Manufacturing is estimated to slow to 2% in 2019-20 from 6.9% the previous year while the services sector, which accounts for nearly 60% of the economy, is forecast to grow by 6.9%, slower than 7.5% in the previous year.Economists said there is a sharp decline in the growth of gross fixed capital formation (GFCF) from 10% in FY19 (revised estimate) to 1% in FY20 (advance estimate), reflecting the subdued investment activity in the economy."These numbers must be read with caution as the methodology clearly says that these are extrapolations of the existing data on various sectors which could range from 6 months to 8 months. Therefore there is scope for change in these numbers when the actual numbers are reckoned,' said Madan Sabnavis, chief economist at CARE Ratings referring to the overall numbers.The lower nominal growth is also expected to upset the government's fiscal calculations. "For FY20 the budgeted nominal GDP growth rate was 12% which has now been revised downwards to 7.5%. Based on this GDP revision, the impact on the fiscal deficit is around 12 basis points (100 basis points equal a percentage point) for FY20," said Soumya Kanti Ghosh, group chief economic adviser at SBI.The government aims to rein in the fiscal deficit at 3.3% of gross domestic product in the current fiscal year but the pressure on revenues may widen the deficit. There have been calls for relaxing the deficit target to provide space for stimulus to the economy but the government has so far maintained that it will stick to the path of fiscal consolidation.Economists said demand drivers such as private consumption, investment and net exports are down with the exception of government expenditure. "The growth slowdown especially in private consumption to 5.8% in FY20 from 8.1% in FY19 has taken the sting out of FY20 GDP growth because this alone constitutes 57.4% of the total GDP," said Sunil Sinha, principal economist at India Ratings and Research."We believe that the advance estimates of 5% GDP growth is not sacrosanct. There are risks," he said.