ICRA expects growth of Indian gross value added (GVA) at basic prices to print at 7.2% in Q1 FY2017, similar to the pace in Q1 FY2016, while easing mildly on a sequential basis, from the 7.4% recorded in the previous quarter.
Aditi Nayar, Senior Economist, ICRA Limited, said: “ICRA expects a pickup in growth of industry to 7.1% in Q1 FY2017 from 6.7% in Q1 FY2016, which would offset a decline in growth of services and agriculture & allied activities. Accordingly, growth of GVA at basic prices is expected to remain steady at 7.2% in Q1 FY2017, in line with the print for Q1 FY2016, albeit easing mildly from the 7.4% recorded in Q4 FY2016.”
ICRA expects real manufacturing growth to have improved to ~8.0% in Q1 FY2017 from ~7.3% in Q1 FY2016, supporting a pickup in industrial growth. “Corporate earnings for Q1 FY2017 suggest the full impact of increase in commodity prices is yet to be felt in the current fiscal. As a result, growth in earnings has been higher than revenue growth, and is also likely to have exceeded the volume trend revealed by the Index of Industrial Production (IIP),” Ms Nayar added. In addition, growth of electricity generation improved sharply to ~9.0% in Q1 FY2017 from 2.3% in Q1 FY2016, led by a pickup in growth of thermal electricity generation to ~13% in Q1 FY2017 from ~1% in Q1 FY2016.
However, the contraction in the output of capital goods as well as the Central Government’s capital expenditure, would weigh upon the growth of gross fixed capital formation in the just-concluded quarter.
ICRA expects the pace of growth of agriculture, forestry & fishing to ease to 2.2% in Q1 FY2017 from 2.6% in Q1 FY2016. Notwithstanding the boost from the aggregate rise in production of rabi crops (led by wheat), which were harvested in April 2016, the drought-like conditions that prevailed in Q1 FY2017 over much of the country, would have adversely impacted the performance of summer crops as well as the non-crop sectors.
Service sector growth is likely to report a dip to 8.5% in Q1 FY2017 from 8.8% in Q1 FY2016, following the moderation in growth of bank deposits and credit (including bank credit, bonds and commercial paper), and lead indicators of trade such as air cargo traffic and railway revenue carrying freight. However, the turnaround in the performance of service sector exports and the pickup in growth of the Government of India’s non-interest revenue expenditure, would have supported the overall service sector expansion in Q1 FY2017.
ICRA expects growth of India’s GVA at basic prices to record an uptick of 50 bps to 7.7% in FY2017. Stronger consumption impulses would boost Indian economic growth in the coming quarters. The favourable monsoons and the kharif sowing coverage portend a pickup in agriculture output and rural demand. This, in conjunction with the impending boost to urban demand from the implementation of the Seventh Central Pay Commission’s recommendations, would improve volume growth for manufacturing and services. The transition to the long-awaited GST is also likely to encourage the private sector to expand capacities, crucial to ensure a durable uptick in economic growth. However, merchandise export faltered once again, post-Brexit, and is unlikely to emerge as a major growth driver in the near term. Additionally, fiscal constraints would prevent a sharp pickup in the Government’s direct investment in infrastructure. Moreover, persisting asset quality and capital adequacy concerns for the public sector banks are likely to constrain their ability to fund a sharper revival in economic growth.
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