The Indian economy is poised to bounce back from previous fiscal's 7.1 percent growth rate in the current financial year on the back of monsoon-driven pick-up in the rural economy and thrust on infra and housing programmes, according to Elara Securities economist Garima Kapoor.
"We expect FY18E GDP growth to rise to 7.3 percent from 7.1 percent in FY17, led by a steady recovery in private consumption demand led by recovery in the rural economy following bumper agriculture harvest and government's enhanced rural spending and lower lending rates, supporting recovery in discretionary spending, especially in the segments such as housing amid government's push for 'Housing for All'," she said in a note on Thursday.
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India's fourth quarter (Q4) GDP growth slowed down to 6.1 percent due to demonetisation, resulting in the overall growth rate for 2016-17 falling to 7.1 percent, lower than 7.9 percent registered in 2015-16 (revised in February this year from the earlier 7.6 percent).
The Q4 growth rate was also the lowest as compared to the previous three quarters in 2016-17 (7.2 percent in Q1, 7.4 percent in Q2 and 7 percent in Q3). While Finance Minister Arun Jaitley blamed the Q4 slowdown to a weak global economy, there is consensus among economists that it was due to demonetisation-induced impact.
India Ratings had estimated the impact within days of Prime Minister Narendra Modi's announcement of the decision to demonetise high-value currencies with effect from November 8 2016.
Little impact of Pay Commission proposals
Kapoor was also of the view that the recommendations of the 7th Central Pay Commission (CPC) may not result in giving a significant boost to the economy, given its skewed nature of implementation. "It is important to note that the expected benefit of Pay Scale revisions is unlikely to come about as only a handful of states have implemented 7th Pay Commission recommendations. Our study of state budgets for 15 states shows that only 4 among the 15 major states have implemented the 7th Pay Commission hikes in 2016 & 2017 thereby muting the expected fillip to growth," she wrote.
The Centre is yet to take decision on raising allowances of government employees, almost a year after the CPC submitted its recommendations.
Disruptive GST
While the implementation of the Goods and Services Tax (GST) regime from July 1 is being seen as a changer in the long term, there will be some disruption in the second quarter (July-September).
"The expected de-stocking around GST implementation may dampen growth in industrial production during Q2FY18 and a gradual pick up in credit demand may keep a lid on the recovery in growth in financial services," Kapoor said.
