Higher government spending and robust farm sector growth are expected to boost economic growth in the first quarter of the current fiscal year to at least 6.5 per cent, if not higher. But the manufacturing sector may remain sluggish due to several factors, including the rollout of the Goods and Services Tax (GST).
Official data on GDP growth for April to June 2017 is scheduled to be released on August 31. The economy grew 7.9 per cent in the first quarter of 2016-17. It had grown 7.1 per cent in 2016-17, with fourth-quarter growth at a mere 6.1 per cent.
“Economic growth is estimated to have been better in the first quarter of the fiscal, as it is expected that the impact of demonetisation may have played out to some extent by April. But, with the build-up of GST from May, factory output started slowing down,” said an official familiar with the development.
But the boost to the economy is expected from higher government spending, which started from April 1 due to the advancement of the Budget. Farm sector growth is also estimated to have been good, but the effect of a high base may play out to some extent.
The second volume of the Economic Survey has been cautious on the growth outlook for the fiscal year and has highlighted downside risks to its earlier forecast of 6.75 to 7.5 per cent GDP growth for 2017-18.
Private economists also expect first-quarter growth to be muted. ICRA expects GDP to rise 6.1 per cent (year-on-year) and gross value added to grow 6.3 per cent during the period. Nomura sees growth at 6.6 per cent
GST impact “The disruption in production schedules and discounts offered ahead of the implementation of the GST, the impact of the appreciation of the rupee and specific issues related to sectors such as banking and telecom are likely to weigh upon the GVA growth in the first quarter, offsetting the impact of the up-fronting of the Central government’s expenditure and a healthy rabi harvest of several crops,” said Aditi Nayar, Principal Economist, ICRA.