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Economists endorse Niti Aayog’s growth projections

LiveMint logoLiveMint 09-05-2017 Prerna Kapoor

New Delhi: Economists have endorsed the three-year growth outlook of federal policy think-tank Niti Aayog banking on the reforms currently underway such as the introduction of a goods and services tax (GST), the resolution of stressed assets in the banking sector and a planned turnaround in the power sector.

Four of the five economists Mint talked to suggested that the projected baseline growth in gross value addition (GVA) in the economy—a key measure in computing gross domestic product (GDP) excluding taxes and subsidies—of 11.6% is achievable in 2017-18 on the back of reforms.

Economists also concurred with the Niti Aayog projection of 12.3% and 13% growth in GVA for the next two financial years, respectively, as well. The Narendra Modi government is banking on faster economic expansion for reduction in poverty and to raise resources for spending on infrastructure and social sectors such as health and education.

Niti Aayog gave a detailed action plan on 23 April to state governments for development and expenditure planning for three years, up to 2019-20. It gave three potential scenarios for nominal GVA growth—high, baseline and low.

Experts pointed out that the think-tank, however, did not give an outlook for real growth numbers, adjusting for inflation, nor the assumptions underlying its growth outlook.

“In real terms these growth rates should range between 6% and 9% for 2017-18 with a baseline growth of about 7.5%. It is clearly achievable,” said N. Bhanumurthy, professor at the National Institute of Public Finance and Policy.

Bhanumurthy said that unlike the conventional way of presenting growth in real terms, the action plan presented nominal growth forecasts. “It is not clear why such change, more so when India clearly has inflation targeting regime,” he said, adding that the Niti Ayog action plan did not specify the assumptions behind its forecasts such as normal monsoon, investment rates and external conditions.

Only one expert risked a guess on the high growth scenario of 13%, 14% and 15% for the three years starting 2017-18.

“Based on the present growth rates we have witnessed, of 7% range in real terms or about 10-11% in nominal terms, the high growth scenario is possible numerically,” said Madan Sabnavis, chief economist at ratings company Care Ratings Ltd.

D.K. Joshi, chief economist at Crisil, said the baseline growth scenario is achievable if banking and power sector problems are sorted out and there is no major hit from the global economy. “The economy will also get efficiency tailwinds from GST rollout,” said Joshi.

Ashima Goel, professor at Indira Gandhi Institute of Development and Research, said the nominal growth targets implied GDP growth rates ranging between 6% and 11%. “Under low growth scenario, the range is 6-7% GDP growth. This is certainly achievable.”

Aditi Nayar, principal economist at rating company ICRA Ltd, too agreed the baseline projection was achievable. “…the baseline growth forecasts included in the action plan would entail an acceleration of real GVA growth from above 7% in FY17 to around 8.5-9% in FY19. A successful transition to the GST, continued widening of the formal economy, broad-based investment in infrastructure and improved exports could underpin such a scenario,” she said.

The action plan also envisages revenue deficit will fall from 2.1% in FY17 to 0.9% in FY20.

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