Home >Politics >Policy >The worst may be over for the Indian economy
India’s economic growth has decelerated to 5.7% in the quarter ended June. Photo: Mint
India’s economic growth has decelerated to 5.7% in the quarter ended June. Photo: Mint

The worst may be over for the Indian economy

India's GDP growth rate is seen rebounding to 6.4% in the September quarter, as the disruptive effects of demonetisation and GST rollout fade

India’s economic growth is set to rebound after decelerating to 5.7% in the quarter ended June, the slowest pace in three years, as the disruptive effects of the withdrawal of high-value banknotes in November 2016 and the 1 July switch to the goods and services tax (GST) fade. Gross domestic product (GDP) will grow 6.4% in the July-to-September quarter, according to the median estimate of 46 economists polled by Bloomberg. GDP data will be released on Thursday.

Even the most pessimistic forecasts are for growth to rebound. Rabobank, which had correctly predicted the June quarter’s 5.7% number, has forecast GDP will expand 5.9% for the three months ended September. Wells Fargo has predicted an optimistic 7.1%. The reasons for the foreseen growth recovery are many: a rise in industrial production and exports, restocking by businesses after the transition to GST and some major festivals that would have boosted consumer demand.

A wide range of high-frequency indicators also support the thesis of rebounding growth. Growth in the sales of passenger vehicles, two-wheelers and tractors, as well as diesel consumption, rail cargo and electricity generation, have all accelerated. That is expected to offset the slowdown in government spending as it remains on course to contain the fiscal deficit for the year at 3.2% of GDP amid uncertainty over tax collections and rising crude oil prices.

The GDP numbers will also provide some pointers to important sub-sectors of the economy. Consumption demand is one, although quarterly numbers aren’t an entirely reliable indicator. A pick-up in consumer demand is necessary to boost growth at a time when government spending is slowing and investment demand is not showing any signs of a pick-up, owing to impaired balance sheets in both the corporate and banking sectors.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

My Reads Redeem a Gift Card Logout