Economists expect GVA rise in Dec quarter
Expectation of 6.8% against 6.1% in Q2; data due tomorrow
Economic activity is likely to have gained momentum in the third quarter of 2017-18, aided by higher industrial growth and central government spending.
Gross value added (GVA) is expected to grow 6.8 per cent in the third quarter of 2017-18, up from 6.1 per cent in the second quarter of 2017-18, say economists. It was 5.6 per cent in the first quarter. Investment activity is also likely to see a pick-up in the quarter ended December.
The Central Statistics Office (CSO) is slated to issue the numbers for the third quarter (Q3) on Wednesday, as well as the second advance estimates for 2017-18 (FY18).
Industrial activity is likely to have gained in the third quarter as the effect of transition to the goods and service tax (GST) wears off. A Business Standard analysis of 1,000 companies shows GVA at current prices grew 16.2 per cent in Q3FY18, up from 11.2 per cent in the second quarter (Q2). The GVA of these firms had slumped to a low of 2.4 per cent in the first quarter (Q1), with production cut in anticipation of the GST roll-out. By comparison, the CSO says, GVA at current prices had grown 8.3 per cent in Q2 of last year, up from 4.9 per cent in (Q1).
Soumya Kanti Ghosh, group chief economic advisor of State Bank of India, said in a research note: “Results of 3,415 listed entities show an encouraging growth of 17.08 per cent in bottom line, whereas the top line grew 11.36 per cent in Q3FY18 as compared to Q3FY17. We believe that manufacturing GVA would be in the range of 8-10 per cent for Q3FY18 if the trend persists for the other companies.” Gross domestic product (GDP) would grow between 6.5 and 7 per cent in Q3, he said, up from 6.3 per cent in the previous quarter.
Part of the rise would be due to a favourable base effect, restocking of inventories after the festive season, and a catch-up effect after muted volume growth in the first half of the financial year, said ICRA in a research note, adding GVA would be 6.8 per cent in Q3. Leading economic indicators also suggest an uptick in industrial activity. The Index of Industrial Production, essentially a volume indicator, grew 5.9 per cent in Q3, up from 3.3 per cent in Q2. It had grown 1.9 per cent in Q1.
Madan Sabnavis, chief economist at CARE, said: “We anticipate GVA to grow 6.8 per cent in Q3, driven by higher industrial output. Sectors such as cement and steel have shown improvement.”
Higher central government spending is also likely to boost growth. “Central government non-interest revenue expenditure grew 9.8 per cent in Q3FY18, up from 0.8 per cent in Q2FY18. It had surged to 26.8 per cent in Q1FY18,” said Aditi Nayar, principal economist at ICRA. However, she cautioned “available data for 22 state governments indicates a slowdown in revenue expenditure growth to 2.9 per cent in Q3FY18 from 11.1 per cent in Q1FY18 and 13.3 per cent in Q2FY18, as well as 15.8 per cent in Q3FY17.”
At the aggregate level, ICRA said the services sector would grow 8.8 per cent in Q3FY18, up from 7.1 per cent in Q2FY18, “reflecting the improvement recorded by indicators such as bank credit, cargo handled at major ports, passengers carried by domestic airlines and foreign tourist arrivals.”
“We also expect financial, insurance, real estate and professional services to do better, on the back of higher credit growth,” added Sabnavis.
On the expenditure side, the GDP data might show an uptick in investments for two reasons. First, the capital goods segment in the IIP grew 11.1 per cent in Q3, up from 4.9 per cent in Q2. The segment had contracted 4.2 per cent in Q1. Second, capital spending by the Centre and states is likely to have risen.
“The double-digit growth of capital goods, in conjunction with the neardoubling in capital spending of the Centre and modest rise in capital spending of state governments in Q3FY18 (following two quarters of contraction), may contribute to a pick-up in the assessed growth of GFCF (gross fixed capital formation) in Q3FY18,” added Nayar.