Bibek Debroy, Chairman, Economic Advisory Council to the Prime Minister, on Friday said that it would be incorrect to conclude, on the basis of just one quarter’s GDP growth rate, that India is on a 5 per cent expansion trajectory.

GDP grew at 5 per cent in the first quarter of FY20, the slowest pace in six years. There is no reason to be despondent about 5 per cent growth, he said.

There is significant volatility in GDP growth rate and there are precedences of growth of less than 5 per cent in a particular quarter shooting up to 7 per cent in the very next quarter, he said.

According to Debroy, the lowest GDP projection, not only within the government but also outside the government, for 2019-20 is 6.2 per cent, which is not a reason for gloom, given what is happening in the external sector.

Growth rate trajectory

States, which are lagging in terms of growth, should jack up their rates of growth, for India to be on 8-8.5 per cent growth trajectory.

“About 90-95 per cent of national income happens at the level of States, the exceptions being defence and railways. Hence, if we want to have 8-8.5 per cent rate of growth, that is not going to happen in Delhi but in States. There are several States, where since 2012-13 the average rate of GSDP growth is less than 6.5 per cent. Half the States are above average, and if others can jack up their rates of growth, then 8-8.5 per cent rate of growth is doable,” Debroy said while addressing a Banking Colloquium, organised by CII.

Some of the components for achieving 8-8.5 per cent growth would be public expenditure, consumption, investments and net exports.

There are likely to be several changes in the period leading to the next Budget and these are going to be extremely important. The finances of the Union government are extremely stretched at the moment due to GST compensation to States as well as the recommendations of the 14th Finance Commission.

The 15th Finance Commission recommendation would kick in from April 1 2020, he added.

According to Debroy, GST collection has been revenue negative so far instead of revenue neutral. For revenue neutral, the average GST rate for the country should be 17-18 per cent, but now the average is 14 per cent.