The first advance estimate of India’s full year FY2018 showed that economic growth is likely to have decelerated to 6.5 percent from 7.1 percent in FY2017. But, the projection is mainly predicated on weak H1 FY2018 growth.
According to an ANZ research report, the projected GDP growth figure is softer than what the headline implies. Stripping valuables, India’s economic growth would probably decelerate to 5.7 percent in FY2018 from 7.5 percent previously. The estimated deceleration in growth in FY2018 is probably driven by two factors: firstly, the linger impacts from successive policy shocks of demonetization and the Goods and Services tax and secondly, the twin balance sheet problem on high corporate leverage and banks’ stressed balance sheets, stated ANZ.
Based on the full year estimate of 6.5 percent, economic growth is estimated at 7 percent in the second half of FY2018 compared with 6 percent in the first half of FY2018. This rebound is based on the assumption that the total budgeted public spending would be used by the government for the remainder of the fiscal year.
“On the contrary, we believe the tight fiscal position of the central government will likely necessitate a further cut-back in public spending”, stated ANZ.
The advance estimates imply that investment demand probably stayed tepid, recording a growth of 4.5 percent in FY2018. This marks just a moderate rebound from the 2.4 percent growth seen in FY2017. Private consumption is also expected to moderate to 6.3 percent from 8.7 percent in the previous year. Private consumption growth is expected to moderate further to 6 percent in H2 FY2018 from 6.6 percent recorded in H1 FY2018.
“Looking ahead, we expect growth to rebound to 7.2 percent in FY2019 as the economy recovers from supply-side disruptions. There has been some improvement in credit growth in recent month. The planned re-capitalisation of public sector banks is likely to further improve the lending capacity of banks”, added ANZ.
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