GDP likely to grow at a healthy 7.5% in first quarter, say economists

India's economy is expected to grow at a healthy 7.5 per cent in the first quarter (Q1) of 2018-19 (FY19), lower than a seven-quarter high of 7.7 per cent in the fourth quarter (Q4) of 2017-18 (FY18), economists have said. 

Economic activity is expected to get a fillip from strong manufacturing activity and higher agricultural growth. Gross domestic product (GDP) had dipped to a low of 5.6 per cent in Q1 of FY18, due to initial problems with introduction of the goods and services tax (GST) and lingering impact of demonetisation. This will also make GDP growth in Q1FY19, look higher. 

GDP numbers for Q1FY19 are slated to be released on August 31. Part of the surge in industrial activity in Q1 of the current financial year can be traced to a low-base effect. 

Industrial output (Index of Industrial Production) grew by 5.2 per cent in Q1FY19, up from 1.9 per cent in Q1FY18, with the manufacturing sector growing at 5.2 per cent in Q1FY19, up from 1.6 per cent during the same period in the previous financial year. 
Last year, growth was depressed as companies resorted to destocking inventory ahead of the shift to the GST regime. Gross value added (GVA) by the manufacturing sector had contracted 1.8 per cent in Q1FY18. 

"The 5 per cent growth in manufacturing volumes in Q1FY19, in conjunction with healthy earnings reported by corporates, which partly reflects the base effect related to the transition to the GST, is likely to boost GVA growth of manufacturing," said Aditi Nayar, principal economist at Icra. 

"Overall, manufacturing GVA is expected to grow by a considerable 11 per cent in Q1FY19, in contrast to the de-growth of 1.8 per cent in Q1FY18," she added. 

Devendra Pant, chief economist at India Ratings and Research (Ind-Ra), expects the industry to expand around 8.3 per cent in Q1FY19. 

Pant pegs the economy to grow at 7.5 per cent in Q1, even as he has revised the FY19 economic growth forecast downwards to 7.2 per cent, from the earlier 7.4 per cent. For the first half of the financial year, Pant has projected growth at 7.4 per cent, higher than the second half growth of 7.1 per cent. 

In comparison, the Reserve Bank of India has pegged growth at 7.4 per cent for FY19, ranging 7.5-7.6 per cent in H1 and 7.3-7.4 per cent in H2. The construction sector is expected to maintain its growth momentum. 

Cement production, a leading indicator of the sector, grew at a robust 14.2 per cent in Q1FY19, after contracting 3.3 per cent over the same period last year. Steel production, though, has slipped to 2.9 per cent in Q1FY19, after growing at 6.2 per cent last year. 

Icra expects the construction GVA growth to improve sharply to 8 per cent in Q1FY19 from the low of 1.8 per cent in Q1 FY2018. The sector had grown by 11.5 per cent in Q4FY19. 

On agriculture, experts contend that below-normal rainfall and a decline in reservoir levels could impact post rabi harvest output of agriculture, forestry, and fishing. 

But growth forecasts for the sector vary. While Nayar expects the sector to grow at a robust 4.5 per cent, Pant is more circumspect, pegging growth at 3 per cent in Q1FY19.

On the expenditure side, investment activity may continue to witness an upswing.

The capital goods segment in IIP grew at a healthy 9.5 per cent in Q1FY19, after contracting by 4.2 per cent over the same period last year. Central government capex has also grown by 27.3 per cent over the same period in the current financial year.

In a recent survey, FICCI pegged GDP growth at 7.1 per cent in the first quarter of the current financial year. 

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