India recovering from dual shock of demonetisation, GST, but these concerns remain, says IndRa

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Updated: May 9, 2018 10:02:06 PM

Even though the economy has gradually weathered the twin shock of demonetisation and goods and services tax (GST), widening current account deficit (CAD) and rising crude oil prices continue to create pressure, India Ratings said.

New inflation index for 10 services to be released in June as trialSurging bond yields which indicate potential slippages on the fiscal front constitute the areas of concern on the monetary side.

Even though the economy has gradually weathered the twin shock of demonetisation and goods and services tax (GST), widening current account deficit (CAD) and rising crude oil prices continue to create pressure, India Ratings said. “Our research has shown that major macro parameters like manufacturing, capital goods production, non-food credit and consumption are showing signs of recovery,” India Ratings chief economist Devendra Pant told PTI.

Surging bond yields which indicate potential slippages on the fiscal front constitute the areas of concern on the monetary side.”Things are improving now. If things behave as they are now and the policy remains conducive, growth in current fiscal is expected to be 7.4 per cent”, Pant said. He said it was unlikely that the government would go ahead with big bang reforms due to the 2019 Lok sabha elections.

Provided capital flows were in surplus of outflows caused by high oil import bill, and the current account deficit (CAD) remaining within three percent, it would not be concerning for the economy. “In that case, the rupee will have an appreciating bias” he said.

IMF report on India’s economy

On Wednesday, the International Monetary Fund (IMF) reaffirmed that India will be the fastest growing major economy in the running year. It will clock a growth rate of 7.4 percent that rises to 7.8 percent in 2019 with medium-term prospects remaining positive.

The IMF’s Asia and Pacific Regional Economic Outlook report said that India was recovering from the dual shocks of demonetisation and the introduction of the Goods and Services Tax (GST), and “the recovery is expected to be underpinned by a rebound from transitory shocks as well as robust private consumption.”

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