Growth to pick up to 7.6% in second half of this fiscal: Crisil

Domestic rating agency Crisil on Friday saw a pick-up signals in the Central Statistical Office (CSO) data on GDP estimates for the second quarter (Q2) of this fiscal. 

After declining to a three-year low of 5.7% in Q1, GDP nosed up to 6.3% in Q2 on improvement in industrial growth.

The rating agency statement said, "We expect the growth to pick up to 7.6% in the second half of this fiscal, helped by low-base effect of the second half of fiscal 2017."

The agency, however, cautioned against "GST implementation glitches, on-going changes in the GST structure, and a possible cut in capex due to rising fiscal stress may limit upside in the subsequent quarters."

In its data reading, the agency said "Gross value-added (GVA) growth, which measures the economy from the producer or supply side – and is supposed to be a better measure of economy activity – improved to 6.1% in Q2 from 5.6% in Q1, largely on account of revival in industrial activity."

However, on the demand side, the Crisil report said "private consumption growth moderated to 6.5% from 6.7%, suggesting the improvement in the manufacturing growth was largely the result of a re-stocking exercise. Exports growth remained flat at 1.2%. While imports growth slowed to 7.5% from 13.4%, net exports which remained negative weighed on growth."

"Investments continue to remain subdued, declining to 28.9% of GDP compared with 29.8%. Along with low capacity utilisation and the twin balance sheet problem (high leverage of corporates and large non-performing assets in the banking system), GST-related uncertainties have deferred recovery in the investment cycle," the report added.

The report further said that the government’s Rs 2.11 lakh crore recapitalisation plan would improve banks’ ability to lend, which is an incipient positive for the investment cycle.   

The rating outlook said, "administrative issues related to tax refunds under GST and repeated changes being made to the structure/tax rates continue to lead to uncertainty for businesses and may weigh on growth in the road ahead, particularly for small scale units. That would have negative implications for employment."