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As the new portfolios of the new Cabinet were being handed out, we got the data on the fiscal deficit.

The fiscal deficit for FY19 came in at 3.4% of the GDP, which was very much in line, just a tad higher than the revised fiscal deficit target of 3.3%. The Interim Budget had pegged the target at 3.4% for FY20.

An over 100% of the non-tax revenue target is what helped bridge this gap so narrowly. Thanks to the many interim dividends from the various PSUs and more importantly, Rs.28,000 crore dividend from the RBI, today the fiscal deficit picture looks good.

But then, the news on the FY19 GDP was not so good; no amount of fiscal management helped. Q4FY19 GDP came in at 5.8% v/s 6.6% in Q3FY19 and that for FY19 was at 6.8%, a 5-year low. The numbers were much below what was estimated by most analysts.

The gross value added or GVA was at 5.7% for Q4FY19 v/s 6.3% and at 6.6% for FY19.

The sectors which registered growth rate of over 7%  'public administration, defence and other services’ (8.6%), construction (8.7%), 'financial, real estate and professional services' (7.4%), ‘electricity, gas, water supply & other utility services (7%)’. The growth in the ‘agriculture, forestry and fishing’, ‘mining & quarrying’, ‘manufacturing’ and ‘trade, hotels, transport, communication and services related to broadcasting’ is estimated to be 2.9%, 1.3%, 6.9% and 6.9% respectively.

The Govt also released the unemployment data but for FY18 and that was at 6.1%. Urban unemployment was at 7.8% and rural was at 5.3%.

Internals of the GDP for Q4FY19 (QoQ)

  • Farm – (-)0.1% v/s 2.7%
  • Mining and quarrying – 4.2% v/s 1.8%
  • Manufacturing – 3.1% v/s 6.8%
  • Electricity – 4.3% v/s 8.3%
  • Construction – 7.1% v/s 9.7%
  • Trade, hotels and transportation -  6% v/s 6.9%
  • Finance & real estate – 9.5% v/s 7.2%
  • Public Admin - 10.6% v/s 7.6%

Well, this was something we all had expected. And going by the IIP and auto numbers coming in, the first quarter also does not look too good. The first half of the current fiscal is expected to show pressure and we could possibly see some easing only from Q3 and Q4.

The GDP for FY20 is expected to remain at below 7% but if the impetus for growth does not come in from the Govt, the growth could slip below 6%. But that is something which the Govt might not allow to happen.

The day the new FM is announced, this data surely shows the work cut out for Nirmala Sitharaman. Hopefully, monsoon will not play truant and make the task completely uphill. Yet, as of now, the near term outlook does not look overtly optimistic.

Prior to that, on 6th June, the pressure just went up further on the RBI to bring down rates by at least 25 bps, assuming monsoon is normal.

The next release of quarterly GDP estimate for the quarter April-June, 2019 (Q1 of 2019-20) will be on 30.08.2019.

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