GDP Preview: Growth Can Moderate To Sub-7% For First Time In Five Quarters
Urban consumption is showing signs of moderation, even as rural is showing nascent signs of improvement, says Gaura Sengupta of IDFC First Bank.
Indian economic growth is expected to rise at a slower pace in the first quarter of the financial year amid muted government spending and weaker demand.
The gross domestic product is estimated to grow 6.8% in the April–June period, according to economists polled by Bloomberg. That is lower than 7.2% in the previous quarter. Gross value added is forecasted to increase 6.5%.
Results of listed companies show a slowdown in profit growth in the June quarter, with a pickup in input-cost pressures, IDFC First Bank said in a note. Government revenue expenditure also declined in the first quarter, with expenditure patterns disrupted due to the general election.
Urban consumption is showing signs of moderation, even as rural is showing nascent signs of improvement. The relatively better-distributed monsoon supported employment creation in rural areas, according to Gaura Sengupta, economist at IDFC First Bank.
Capital-expenditure cycle, which was the key driver of growth in the last financial year, has weakened in the first quarter, with the Union and state governments' capital expenditure tracking sharply lower.
Key Sectors
Amid a decline in the output of most rabi and summer crops and deficient rain in June, ICRA expects the GVA growth of agriculture, forestry and fishing to print at 1% in the first quarter of this fiscal.
The profit margin of manufacturing companies eased in the three months to June vis-a-vis March quarter of the previous fiscal, amid an uptick in global commodity prices and the narrower deflation in input costs as reflected in the WPI-industrial raw materials, according to ICRA.
This, along, with the lower growth in manufacturing IIP volumes, suggests that the year-on-year growth in manufacturing GVA is likely to have slowed in June quarter to 7% from 8.9% in the March quarter and construction to 4% from 8.7%. In contrast, electricity, and mining and quarrying are projected to record an uptick in growth, according to ICRA's estimates.
ICRA estimates the expansion in the services GVA could ease slightly to 6.5% in the June quarter from 6.7% in March quarter, according to ICRA's estimates, which can partly be attributed to the heatwave conditions that dampened mobility/travel.
Will GDP Growth Touch 7% This Fiscal?
While government expenditure is likely to pick up from this quarter, there is a non-trivial risk that corporate sector profitability remains muted even in subsequent quarters, led by higher input costs and a reduction in demand, according to Kaushik Das, chief economist at Deutsche Bank.
If that were to happen, then growth could continue to surprise to the downside relative to the central bank's forecast, which has growth over 7% year-on-year in each quarter of the current financial year and even in April–June, he said.
Deutsche Bank forecasts growth at 6.9% for the full year at this juncture.
