Albeit required, demand compression measures – e.g. PSDP cut, interest rate hike, and currency adjustment – are taking their toll. Soon after re-discovering growth momentum circa 2016, economy is about to enter the dark alley of low-growth, high-inflation again. The official word, by the Planning Commission, is that the GDP growth would fall to 4.2 percent in FY19, down from 5.8 percent in FY18.
Earlier this Monday, the Planning Commission made public some contours of the 12th Five-year Plan through a press release. It sounded hopeful that “consolidation” would be over by FY20, suggesting economic expansion in the remainder of government’s term. Though the 12th Plan is in a draft stage, the Commission has put forth an average growth rate of 5.8 percent through the PTI’s term – with a 7 percent growth rate in FY23. That’s higher than what the PML-N averaged (4.8%) through its tenure.
The planning folks are being a little optimistic. Taking the initial and final GDP growth rates at 4.2 percent and 7 percent respectively, a little math would show that the average growth rate of 5.8 percent between FY19-23 is attainable only if the middle years of FY20, FY21 and FY22 show GDP growth rates close to 6 percent each. That kind of growth momentum is highly untenable, especially for FY20, when the effects of fiscal and monetary adjustments will come into full force.
One awaits the final Plan to assess its core assumptions. But a clue has been given. “This (average) growth (over five years) has been projected on the basis of 3.6 percent growth in agriculture, 6.1 percent in industry and 6.8 percent in services sector on average during Plan period,” reads the Planning Commission’s press communiqué.
Those sectoral growth projections might be really challenging to achieve, for two reasons.
Firstly, those forecasts are higher than the sectoral averages seen in the past five fiscals (see the graph) – the numbers forecast are at odds with the continued stagnation in agricultural yields and decline in manufacturing competitiveness. The services sector might deliver the forecast – but it might not show its usual zeal if there is a lull in the housing, banking and retail markets due to the demand-side factors.
And secondly, given the ongoing contraction in the LSM sectors and its attendant consequences on the services sectors, the industrial sector will have to bounce back post-consolidation-years in FY22 and FY23 with double-digit growth, if the Planning Commission’s forecast is to be met. Sustained double-digit growth in industrial activities in terminal years can be characterized as a miracle, not a rigorous forecast.
Unlike the finance ministry, the Planning Commission shouldn’t feel compelled to present rosy forecasts. If the IMF’s projections are anything to go by, average GDP growth in FY19-23 will be just over 3 percent – a big deviation from the Commission’s forecast. It’s time to accept economic realities for what they are and start taking innovative measures, with the help of private sector, to create millions of jobs and houses as promised. Otherwise, it will be business as usual, of numbers being thrown about here and there.
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