NITI Aayog’s new vice-chairman Rajiv Kumar expects the economy to bounce back to grow 7-7.5% in the September quarter after it decelerated to its lowest level in three years in the June quarter.
Data released by the statistics department showed the economy slowed to a growth pace of 5.7% in the first quarter (Q1) of 2017-18 from 6.1% in the March quarter as companies drastically reduced production ahead of the implementation of the goods and services tax (GST) starting 1 July.
Kumar, who took charge on Friday after economist Arvind Panagariya abruptly vacated the post to go back to teach at Columbia University, said at a press conference that active destocking of goods in anticipation of GST roll-out and the base effect of the high manufacturing growth rate in the April-June period of 2016-17 contributed to slower growth in the June quarter.
Kumar has worked in the past as chief executive of Delhi-based think tank Indian Council for Research on International Economic Relations and secretary general of industry lobby group Federation of Indian Chambers of Commerce and Industry.
“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.
Kumar said it was better for NITI Aayog to put out its own projections through an economic growth forecasting unit rather than rely on estimates by other organizations.
After the Q1 GDP (gross domestic product) estimate was released, most economists said they would revise their annual growth projection for 2017-18 to around 7%.
Madan Sabnavis, chief economist at CARE Ratings Ltd, said the rating agency now expects 7.1% growth for 2017-18, down from its earlier estimate of 7.6%.
“Dealers will scale back to regular stock levels, though it will take time. Maximum acceleration will be seen in the third quarter," said Sabnavis.
Credit rating agency Crisil Ltd said in a note that in an environment of subdued global growth and weak investments, India’s GDP cannot grow fast in the short run. “For fiscal 2018 as a whole, we are in the process of revising down our GDP growth forecast from 7.4% stated earlier. That said, normal monsoon, softer interest rates and inflation, and pent-up demand will support consumption growth in the remaining quarters. There will also be a mild push to consumption from budgetary announcements," it added.
The second volume of the Economic Survey, released last month, said a raft of deflationary impulses is weighing on the economy, which is likely to miss the 7.5% upper band of its forecast 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.
N.R. Bhanumurthy, professor at think tank National Institute of Public Finance and Policy, said 7-7.5% GDP growth is achievable next quarter. “Now we have better clarity on GST, one should expect better economic activity both in terms of production as well as consumption," he added.
Kumar believes that private sector investment is showing signs of picking up. “A large number of initial public offerings are lined up... Turnaround of corporate investment is already happening," he said, adding that foreign direct investment is robust.
Kumar said job creation, increasing farmers’ incomes and enabling migration of agricultural workers to more productive segments of the economy will also remain in NITI Aayog’s focus. “Jobs should be created which fulfil aspirations and more focus should be on the demand side rather than supply. Sectors like agro-processing, tourism and hospitality are seeing higher job creation, apart from traditional textiles and handicrafts," he added.