As Sitharaman set to present Budget, state of economy explained in 4 charts
Revival in economic growth: Modest, with a stimulus badly needed
The Survey projects gross domestic product (GDP) growth for the current fiscal year to be 7%. This figure was 6.8% in 2018-19 and 7.2% in 2017-18. This suggests that the Survey is predicting a modest improvement of 20 basis points in the GDP growth rate in this fiscal year. However, a look at quarterly growth rates suggests that the challenge could be bigger. GDP growth in the quarter ended March 2019 was just 5.8%, much lower than what it had been in the previous seven quarters. This underlines the need for a big stimulus.
Decline in household savings: Worrying for both demand and investment
The Survey expresses concern about the decline in household savings. It has come down from 23.6% of GDP in 2011-12 to 17.2% in 2017-18, the latest period for which data is available. This is in part due to a strain on incomes to meet expenses. A revival in the savings rate is crucial for increasing economic growth — in terms of both demand and investment. The latest (May 2019) Reserve Bank of India Consumer Confidence Survey has shown that both current and one-year-ahead perceptions about spending on non-essential items were the lowest in the series.
Fiscal consolidation continues: But for how long?
The Economic Survey predicts the central government’s provisional fiscal deficit for 2018-19 at 3.4% of GDP, 10 basis points less than what it was in 2017-18. The combined deficit of the centre and states in 2018-19 is expected to be 6%, 60 basis points less than the 2017-18 value. With the centre committed to compensating states for any revenue losses under the Goods and Services Tax (GST) regime and GST collections falling short of targets, it will be interesting to see the projected fiscal deficit of the Centre for 2019-20.
Conflicting signals on crude prices: Oil is still key
Given India’s import dependence for energy, crude prices play an important role in the economy. The Survey notes that crude prices have been offering mixed signals in the last one year and were considerably higher in 2018-19 than they were in the previous year. A spike in crude prices could upset the fiscal math for the next year.
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