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GDP growth may fall below 6.5% in FY18: SBI report

LiveMint logoLiveMint 01-09-2017 PTI

New Delhi: The outlook for India’s economic growth, which plunged below 6% in the first quarter of the current fiscal, looks muted, with the possibility of the GDP going below 6.5% in 2017-18, says an SBI research report .

According to the report, growth of manufacturing and service sectors may turn out weak in the July-September quarter as destocking in manufacturing sector activity has well continued in the second quarter of this fiscal, at least till mid-August. India’s economic growth slipped to a three-year low of 5.7% in the April-June quarter as disruptions caused by demonetisation spilled over to the third straight quarter amid slowdown in manufacturing activities.

“The GDP estimates of Q1 show that impact of demonetisation has not withered completely. The steep decline in manufacturing output, both organized and unorganized bears testimony to this fact,” the report said. It further said that the unorganized sector, which accounts for 41% of the GDP, has slowed considerably owing to two factors—climate and demonetisation—and it is not possible to untangle the individual impact of these. Moreover, agriculture, which accounts for 17% of the GDP, is “showing signs of glut”, it said.

This, in turn, will not translate into purchasing in rural areas, thus denting the demand, it added. “The Q2 growth will also be muted and is almost like the Q1 as the support from trade, hotel, transport and public expenditure (as the government already spent so much in Q1) will not be there,” said the SBI research report, Ecowrap.

“Overall, it remains to be seen whether the GDP growth for current fiscal stays below 6.5%,” it added. Moreover, the agriculture growth in coming quarters will be muted as rainfall in the first three months of monsoon was hugely deficit in key foodgrain producing states like Uttar Pradesh (-26%), Punjab (-19%), Haryana (-31%), and Madhya Pradesh (-20%), it said, adding that the manufacturing and mining sector will show sluggish growth in the second quarter also.

On a positive side, the slowly picking credit growth on the eve of festival seasons will support the growth, the report said.

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