The Indian economy has grown at 7.7% in the January-March quarter (Q4) of FY 2017-18. Manufacturing and construction sectors have put up an impressive show with growth at 9.1% and 11.5% respectively. The growth of 4.5% in the agriculture has been supportive as well. With this, India’s GDP growth for FY 2017-18 averaged at 6.7%, a notch above the RBI’s prediction of 6.6%. All signs point to an economy emerging from the transitory negative impact of demonetisation and implementation of Goods and Services Tax (GST).
So far good; but there are signs of tiring...
Although, the government spending has propped the economic growth in FY 2017-18, there’s clearly been a loss in the momentum of its spending. Similarly, the growth in household expenditure has been flagged off.
RBI has projected 7.4% growth for FY 2018-19 and 7.7% for FY 2019-20.
What might work for it :
The government is expected pump in nearly Rs 6 lakh crore in the economy by way of infrastructure spends.
The government has decided to set Minimum Support Prices (MSPs) for crops at 150% of the cost of production.
The budgetary support of Rs 55,000 crore to Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) is expected to lessen the rural distress.
The prediction of normal monsoon may curb the inflationary pressures which are clearly visible at the moment
What may not work :
Quarterly results for Q4, FY 2017-18 suggest that, the industry has been successful in clocking a double-digit growth in sales. However, there’s been a steep fall in the net profits, which suggests that the cost pressures have been rising. If this trend continues, not only will the tax collections be affected, the wage growth might fall as well.
Rising crude oil prices could affect India’s foreign exchange reserve position and may result in the higher inflation as well. (read our blog https://sgkbusinessadvisor.wixsite.com/sgkbusinessadvisors/single-post/2018/05/26/Crude-Surge--Impact-on-India-Macro)
Despite the ever increasing government expenditure, the job growth has been feeble.
Lull in the private sector’s capital expenditure (capacity addition spends) might slow down the pace of manufacturing growth.
The possibility of interest rate hikes may further have a bearing on economic growth.
Thus it all depends on how Monsoon and Crude Oil turn out. If India gets normal monsoon with stable crude oil and exchange rate, India will easily beat its projected economic growth rate of 7.4%.