Home >Politics >Policy >Brokerages pare FY18 GDP outlook on slow Q1 growth

New Delhi: Rating agencies and brokerages are paring their GDP (gross domestic product) growth estimates for 2017-18 to below or around 7% after India’s economic growth unexpectedly slowed in the fiscal first quarter.

The Indian economy grew at 5.7%, the slowest in three years, in the June quarter as companies slashed production ahead of introduction of the goods and services tax (GST) from 1 July.

Crisil Ltd said in the wake of unusually slow growth in the first quarter confirms the vulnerabilities of Indian economic growth. Crisil has cut its real GDP growth forecast for 2017-18 to 7% from 7.4% earlier.

The rating agency said the downside risk to its growth outlook is from GST implementation being more disruptive than what it anticipates. “The Indian economy can only grind its way up in an environment of subdued global growth and weak domestic investments. This fiscal would see some added headwinds in the form of GST related disruptions, even as the economy tries to recover from the impact of last year’s demonetization drive," it added.

Brokerage UBS Ltd on Sunday lowered India’s GDP growth forecast for 2017-18 to 6.6% from 7.2% projected earlier. The brokerage said that growth is expected to pick up in coming quarters as the economy normalizes post implementation of the GST.

“We believe India needs continuous policy reforms to stay on a sustainable growth path. Any increase in populist spending in the run-up to the 2019 general elections would likely support consumption but delay the investment cycle recovery, thus lowering the potential growth outlook," it added. It further said that though the implementation of GST has resulted in a temporary disruption in economic growth momentum, it is a significant structural reform that could add 0.6-0.9 percentage point to India’s GDP growth in the medium term.

India’s largest lender State Bank of India in a report released on 1 September said GDP growth in current fiscal will remain weak. “Q2 GDP numbers are likely to be closer to Q1. We however see, GDP growth picking up pace in Q3 and in Q4 the growth is likely to cross 7%. We are hopeful of a better Q4, but that is crucially dependent on outcome of resolution of stressed assets that falls due in Q4," it added.

This is in contrast to NITI Aayog vice-chairman Rajiv Kumar’s projection that the economy will bounce back from the second quarter onwards. “June quarterly data is only a blip and does not show any trend. In the July-September quarter, growth rate should be at least 7-7.5% as there is clarity on GST, restocking of inventory by traders is on and monsoon has been good," he added.

Japanese financial services firm Nomura in a note published on Monday said given the lower April-June quarter print, it has revised its full-year forecast to 6.7% in 2017 as against 6.9% projected earlier. “We expect GDP growth to average 7.4% year-on-year in the second half of 2017 as against 5.9% in first half, aided by ongoing remonetization, restocking post GST, state pay commission hikes and lagged effects of lower lending rates," it added.

The second volume of the Economic Survey released earlier this month said a raft of deflationary impulses is weighing on the economy, which is likely to miss the 7.5% upper band of its predicted growth range this year. The first volume of the Economic Survey released in January had projected growth in the range of 6.75-7.5% in 2017-18 against 7.1% in 2016-17.

The Survey warned that with monetary policy having been tighter than assumed and the rupee having appreciated against the dollar, the balance of risk has shifted to the downside and it is unlikely that the upper band of the projected growth rate will be achieved.

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