At a time when Q1FY18 GDP grew 5.7%, the slowest in the past 13 quarters, Q2FY18 data, to be released on November 30, will give an indication of the full year growth numbers. An SBI research report says the country’s GDP is likely to remain below 6% in the second quarter of 2017-18 owing to muted agriculture growth and sluggish performance of manufacturing and mining sectors.The report noted the agriculture growth is expected to be muted as rainfall in the first three months of monsoon was hugely deficient in key foodgrain producing states like UP, Punjab, Haryana, and MP. In fact, in Q1FY18, the primary and secondary sectors were the key drags, along with net external demand. Manufacturing was at a five-year low, mining collapsed and construction stagnated. Agriculture growth in real terms, too, slowed to 2.3% from 5.2% in the fourth quarter. Services sector growth, however, anchored overall gross value added (GVA) growth, rising 8.7% from 7.2% in the fourth quarter driven by improvement in two sectors: trade, hotels, transport and financial services.
The growth in GVA was 5.6% in Q1FY18, which was the same in Q4FY17, indicating that the waning demonetisation impact was offset by rising anxiety over the goods and services tax (GST). The government’s revenue collection from GST is showing a rising trend of late. It was possible because of the proactive steps taken by the GST Council to remove the sundry glitches that used to trouble taxpayers in the initial months after the GST launch and also the progressive lowering of tax rates by the council over the last few meetings. The growth in GDP continues to be driven by private consumption and government spending. There was a mild improvement in investment growth as compared to the previous quarter which pulled up the share of fixed investments. However, the real estate sector remains subdued on account of weak consumer sentiment, led by factors such as the note-ban-led drag, full implementation of the RERA and GST.
Ratings agency Moody’s, which upgraded India’s ratings to Baa2 from Baa3, expects real GDP growth to moderate to 6.7% in FY17. However, as disruption fades, assisted by recent government measures to support SMEs and exporters with GST compliance, real GDP growth will rise to 7.5% in FY18, with similarly robust levels of growth from FY19 onwards.