#366days366posts – Day 58 – Is the government’s GDP projection realistic?

The Government of India released the economic survey for 2015-16 the other day which says that India’s GDP could grow between 7-7.75% in 2016-17. The GDP growth for 2015-16 according to an advanced estimate has been pegged at 7.6% vs 7.2% for 2014-15. I think the government should have adopted a more conservative approach on GDP projection for the next fiscal.

The outlook for the world as a whole continues to remain bleak. The World Bank projects the world to grow only by 2.9 % in 2016 and 3.1 % in 2017 as well as 2018. Against such a backdrop, I believe the government could have pegged the GDP growth for fiscal 2017 between 6-6.5% which would be far more realistic, not only to achieve but also to believe. It is true that they have provided for a wider margin for the projection for the next fiscal, but the upper end of that margin is simply not attainable. If we are lucky, we may scrape 7% but it looks like 6.5% would be reasonable.

The survey also says that the correlation between world economic growth and growth in India has doubled from 0.2 to 0.42. With the World Bank estimate suggesting a stagnant to decelerating growth rate, such a positive correlation should have resulted in a much more prudent estimate. The doubling of the correlation is a sign that India would be impacted more than before if a recession were to hit – the probability of which is increasing.

In 2014-15, the government had projected the GDP to grow at 8.5% in 2015-16 but even in the advanced estimate, the growth likely to be achieved is only 7.6%. Given that the projection is off by close to 1% with a month to go for end of fiscal, this year’s survey could have addressed the situation a bit better. It would have put the government in a better light if the state of affairs  were to turn out really bad.

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I'm an avid reader and writer. Reading gets me a feeling of understanding the world through different perspectives and writing helps me outline my thoughts from the cobwebs that the mind has trapped it in!

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