Ab­hishek Gupta

Econ­o­mist, Bloomberg In­dia

Dalal Street Investment Journal - - COVER STORY -

Struc­tural forces are driv­ing a down­ward shift in In­dia’s in­fla­tion, mak­ing it likely that the CPI will con­tinue to un­der­shoot the cen­tral bank’s tar­get over the medium term. Cooler food prices re­sult­ing from agri­cul­tural re­forms and favourable har­vest may tem­per the near-term out­look. Fur­ther out, a per­sis­tent out­put gap stem­ming from ris­ing po­ten­tial growth is likely to cap price pres­sures. We fore­cast in­fla­tion at 3% at end-march 2018, down from 3.4% in Au­gust and un­der­shoot­ing the RBI’S out­look by 1.5 ppt. In fis­cal 2019, in­fla­tion is likely to come in at 3.5%, even with an an­tic­i­pated growth re­cov­ery. For out­look on In­dia’s growth, the near term looks chal­leng­ing, while the medium term a lit­tle more promis­ing. The near term GST teething is­sues are a neg­a­tive for do­mes­tic pro­duc­tion and ex­ports. How­ever, growth should re­cover sharply in the sec­ond half of fis­cal 2018, driven by pick-up in ru­ral de­mand, pent-up de­mand from last year's de­mon­eti­sa­tion squeeze, in­clud­ing the boost from salary in­crease for gov­ern­ment em­ploy­ees and con­struc­tion boost from gov­ern­ment’s con­tin­ued fo­cus on low cost hous­ing.❞

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