GDP gaffe, an honest mistake or a customary relapse?

June 12, 2019 (MLN): The government’s statements of late have been falling short of completing a full circle and the latest discrepancy in GDP and inflation projections for fiscal year 2019 – 2020 announced in the ‘budget in brief’, and the one approved in the National Economic Council are another proof of this.

At the Economic Survey 2018-19 that was announced on Monday, advisor to Prime Minister on Finance projected the GDP growth for next year at 4%, whereas the budget announcement for the year has set a target of 2.4% growth.

As the two projections fail to resonate, the general response is spilt between giving the government the benefit of doubt on a reporting error or to expect a lopsided growth within domestic sectors.

Past records for the last few years show that the actual GDP growth usually falls below the set target. Growth in FY19 was aimed at 6.2% from 5.5% recorded prior year, but the latest provisional figures show a growth of 3.3%.

What also catches the eye is that while growth in service sector also falls short of target, the sub-categories within the sector all grow unanimously and the sector’s growth on the whole comes the closest to its target as compared to the rest.

This leads the way towards a nagging question that in case the government decides upon 2.4% growth, would that mean that only the service sector will observe growth this year?

On the other hand, the inflation target set by the National Economic Council for FY20 is 8% whereas the budget’s aim is 11-13%.

Both these forecasts support their respective GDP projections. Lower GDP growth target, implies higher inflation which must come from higher interest rates.

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