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ICRA estimates GDP growth flat at 7.2 %

This growth will be lower than what the GDP notched up in the March quarter at 7.4 %

Policy Pulse
Publish Date: Aug 26 2016 4:03PM | Updated Date: Aug 26 2016 4:03PM

ICRA estimates GDP growth flat at 7.2 %

An Indian independent and professional investment information and credit rating agency ICRA Ltd has estimated the GDP growth to remain flat at 7.2 per cent in the first quarter under the gross value added (GVA) calculation. 


Pick-up in the industrial sector will help offset the decline in services and agriculture and allied activities, which will help the economy grow at 7.2 per cent in the June quarter, same as in the corresponding period last year, Icra senior economist Aditi Nayar said in a note on Friday. 


"We expect a pick-up in industrial growth to 7.1 per cent in the June 2016 quarter, up from 6.7 per cent a year ago, to help offset a decline in growth of services and agriculture and allied activities. 


"Accordingly, growth of GVA at basic prices is expected to remain steady at 7.2 per cent in Q1, in line with the print for the year-ago period, albeit easing mildly from 7.4 per cent recorded in Q4 of last fiscal year," Nayar said. 


The rating outfit expects real manufacturing growth to have improved to 8 per cent from 7.3 per cent a year ago, supporting a pick-up in industrial growth. 


"Corporate earnings for Q1 suggest the full impact of increase in commodity prices is yet to be felt in the current fiscal. As a result, earnings growth has been higher than revenue growth, and is also likely to have exceeded the volume trend revealed by the index of industrial production." 


That apart, growth of power generation improved sharply to 9 per cent from 2.3 per cent a year ago, led by a pick-up in thermal electricity generation growth which jumped to 13 per cent from a paltry 1 per cent in the corresponding period last fiscal year. 


But contraction in the output of capital goods as well as the Central government's capex, will weigh on growth of gross fixed capital formation in the reporting quarter. 


The agency expects the pace of growth of agriculture, forestry and fishing to ease to 2.2 per cent from 2.6 per cent. This is despite the boost from aggregate rise in production of rabi crops (led by wheat) even after drought- like conditions that prevailed in Q1 over most parts of the country. 


Service sector growth is likely to report only 8.5 per cent growth, down from 8.8 per cent a year ago, following the moderation in expansion of bank deposits and credit and lead indicators of trade such as air cargo traffic and railway revenue from freight. 


However, the turnaround in the services sector exports and the pick-up in growth of Government's non-interest revenue expenditure could have supported the overall services sector expansion in Q1, Icra said.


For the full year, the agency expects GVA growth to be 7.7 per cent as it sees consumption to get a boost after the Pay Commission arrears reach Government employees and pensioners in the coming quarters, while good monsoons and the resultant uptick in kharif sowing coverage will also lead to a pick-up in agriculture output and rural demand.