The slowdown in the economy due to demonetisation and the impact of the Goods and Services Tax (GST) seems to have bottomed out, a FICCI survey said.
The GDP growth is expected to improve to 6.2% in the second quarter of this financial year and to 6.7% in the third quarter.
“According to the results of FICCI’s latest Economic Outlook Survey, GDP growth is expected to improve to 6.2% in Q2 of 2017-18 and further to 6.7% in Q3 of 2017-18,” the report said. “The slowdown in the economy due to demonetisation and the adjustment impact of GST implementation seems to be bottoming out and as the new indirect tax regime stabilises, the economy would see an improvement in its performance.”
“The steps taken by the government to reduce the compliance burden related to GST and make its implementation smoother, the comprehensive plan announced for recapitalisation of the banks and the thrust laid on the infrastructure sector have been acknowledged by the survey participants as an indication of government’s clear resolve to address key issues that are hobbling growth,” it said.
In a separate report, Nomura said it expects Gross Value Added (GVA) growth to quicken to 6.3% in the third quarter of the financial year, but added that this rebound is likely to take place after October, which witnessed a slowdown in activity due to the Goods and Services Tax.
“We expect GVA growth to rebound to 6.3% y-o-y in Q3, up from 5.6% in Q2, confirming that the economy bottomed out in Q2,” the Nomura report said. “Early indicators for October, however, suggest a slowdown in activity. We believe the slowdown in October is due to an early onset of the festive season and GST-related issues (front-loaded exports in September) and activity should catch up in November-December.”
Regarding inflation, the FICCI survey said that wholesale price index-based inflation for the year 2017-18 is likely to be about 2.8% and consumer price index-based inflation would be at 3.4%.
“Given this outlook and the fact that supply side issues are largely responsible for the inflation movement in case of India, some of the economists mentioned that inflation targeting by the central bank may not be the correct approach,” the survey report said.
“While asking for a review of the inflation targeting stance of the central bank and calibration of the policy rate giving equal importance to growth and inflation considerations, the participating economists also highlighted how a higher rate of interest leads to greater capital flows thereby putting pressure on the country’s currency exchange rate,” it added.
