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GVA growth to record sequential recovery to 6.3pc in Q2 FY2018: ICRA

GVA growth to record sequential recovery to 6.3pc in Q2 FY2018: ICRA

New Delhi, Nov 21 (UNI) The rating agency, ICRA, in its research has expected the growth of the Indian gross value added (GVA) at basic prices in year-on-year (YoY) terms to record a sequential recovery to 6.3 per cent in Q2 FY2018 from 5.6 per cent in Q1 FY2018.

According to ICRA report, this is led by a broad-based pickup in industrial growth (to +5.8 per cent from +1.6 per cent), even as the expansion of agriculture, forestry and fishing (to +2.0 per cent from +2.3 per cent) and services (to +7.3 per cent from +8.7 per cent) is likely to display some moderation.

The report released here on Tuesday said that excluding agriculture, forestry and fishing, and public administration, defence and other services, the growth of the GVA at basic prices is expected to record an even sharper pickup to 6.9 per cent in Q2 FY2018 from 5.5 per cent in Q1 FY2018. Nevertheless, headline GVA growth in Q2 FY2018 is likely to trail the 6.8 per cent, recorded in Q2 FY2017.

Commenting on it, Aditi Nayar, Principal Economist, ICRA Limited, said, “Q2 FY2018 marked a period of adjustment for the Indian economy, following the introduction of the new Goods and Services Tax (GST) regime.”

She said, “An improvement in corporate earnings, partly reflecting milder discounts and higher commodity prices, and a pickup in volume growth in the mining and electricity sectors, is expected to contribute to a sequential recovery in GVA growth in Q2 FY2018, offsetting the impact of the moderation in growth of the Central Government’s expenditure and a tepid kharif harvest of several crops.”

Manufacturing volume growth in Q2 FY2018 was not as strong as we had initially expected on the basis of restocking after the GST. Subsequent to the discounts that had been offered in Q1 FY2018, consumption demand was subdued in Q2 FY2018, particularly for consumer durables, dampening overall volume growth.

However, corporate results suggest a sequential recovery in earnings growth in that quarter. This has been led by factors such as rising commodity prices, which helped boost the realisations in some sectors such as metals.

“Moreover, the widespread discounts offered in Q1 FY2018 to clear stock prior to the transition to the GST, largely eased in Q2 FY2018. Based on these factors, ICRA expects real manufacturing GVA growth to improve substantially to Rs6.8 per cent in Q2 FY2018 from the low 1.2 per cent in Q1 FY2018,” Ms Nayar added.

The significant turnaround in the performance of the mining output, a favourable base effect, and supportive commodity prices, should boost the GVA growth of the mining and the quarrying sub-sector to a healthy 7.5 per cent in Q2 FY2018, in ICRA’s view.

The contraction recorded by this sector in Q2 FY2017 and Q1 FY2018 had weighed upon the overall GVA growth in those quarters. Electricity generation also recorded an improvement in Q2 FY2018 led by the thermal segment.

However, the activity in the real estate sector remains subdued on account of weak consumer sentiment, led by factors such as the demonetisation-led drag, the full implementation of the Real Estate (Regulation and Development) Act, from May 1, 2017, and the implementation of the GST from July 1, 2017. Such factors are likely to result in the growth of construction GVA remaining low at 2.5 per cent in Q2 FY2018.

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