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Crisil cuts India's GDP growth forecast to 7%

psu-economy-reuters [File] The report says that demonetisation-driven cash crunch has hurt economic growth | Reuters

After government's own data showed GDP growth slipping down to 5.7 per cent in June quarter, now rating agency Crisil has cut fiscal 2018 growth forecast by 40 basis points. According to the company, the country will grow at 7 per cent as opposed to 7.4 per cent forecast earlier.

The report says that demonetisation-driven cash crunch has hurt economic growth, especially small enterprises, while the imminent rollout of the Goods and Services Tax (GST) spurred destocking and a slowing of production brought down manufacturing growth.

"Another worrisome feature of the growth slowdown is that the sectors with high potential to absorb labour force have seen a sharper dip. Most of the sectors that grew fast have low labour intensity and low share in overall output. This suggests that slower economic growth could also have shaved off employment growth in the economy," it says.

GST-related disruptions are expected to limit the upside growth for a few more quarters as there are uncertainties around the possibility of changes to the given tax structure, and as businesses adjust to this new regime. At the same time, the benefit of extremely low commodity prices last year may not be available to the corporates this year and hence the bottom line may remain under pressure.

Agricultural growth, however, is expected to be buoyant. The rainfall in 2017 has as of August-end been normal at an all-India level, at just 3 per cent below the long period average, or what is considered normal. Six states have seen deficient rains (that is, rainfall deficiency more than 10 per cent of normal) while nearly 8 states have been inundated by excess rains, causing floods and flood-like situation.

Even as growth has come down, report's authors believe that it should pick up in next few quarters.

"We believe the sharp decline in growth in the first quarter is transitory and the economy will grind up slowly over the next few quarters as the impact of demonetisation and destocking fades. The Purchasing Manager’s Index (PMI) for August already signals a pick-up in manufacturing activity," says the report.

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Topics : #economy | #GDP

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