With disruption in production schedules and discounts offered ahead of the implementation of the goods and services tax (GST) regime, rating agency ICRA in its latest report has estimated that India's gross value added (GVA) growth likely to slow down to 6.3% in April-June quarter (Q1) of fiscal year 2017-18 from 7.6% in the same period of pervious year, however it also added that it is improving in sequential quarters, relative to the initial estimate of 5.6% for the Q4 FY17. It noted that there is also the impact of appreciation of the rupee relative to the dollar on export earnings.
As per the report, the growth of the GVA at basic prices, excluding agriculture, forestry and fishing, public administration, defence and other services, is likely to be at 4.8% in Q1, in line with the modest 4.8% rise in gross corporate income tax collections. The report stated that specific issues related to sectors such as banking and telecom are likely to weigh upon the GVA growth in Q1 FY18, offsetting the impact of the up-fronting of the government's expenditure and a healthy rabi harvest of several crops.
The rating agency also expects gross domestic product (GDP) to rise by 6.1% in year-on-year terms in the first quarter, lower than the GVA expansion, led by an anticipated slowdown in growth of taxes on products less subsidies on products. Besides, Industrial growth is expected to slow to a modest 3.9% in the quarter from the healthy 7.4% in the year-ago period, led by manufacturing, electricity, gas, water supply and other utility services and construction.
ICRA expects the services sector growth to ease to 8.2% in the period from 9% in Q1 FY17, led by the weak trend in earnings, displayed by two of the key sub-sectors, namely banks and telecom, as well as the sluggish momentum recorded by non-food bank credit, commercial paper. It further said while the average CPI inflation eased to 2.2% in Q1FY18 from 5.7% in Q1FY17, the average WPI inflation posted a turnaround to (+) 2.3% from (-) 0.7%, which is likely to affect the deflators for various sectors.