In­dia post­ing stronger growth as busi­nesses ad­justs to new tax

Enterprise - - Contents -

In­dia´s eco­nomic growth pace picked up in the three months end­ing in September, halt­ing a five-quar­ter slide as busi­nesses started to over­come teething trou­bles af­ter the bumpy launch of a na­tional sales tax.

The econ­omy also has moved past the dis­rup­tions en­coun­tered af­ter In­dia´s shock ban on high-value ban­knotes in Novem­ber 2016, econ­o­mists say. For July-September, the me­dian in a Reuters poll of econ­o­mists was for an­nual growth of 6.4 per­cent. Fore­casts ranged from 5.9 per­cent to 6.8 per­cent.

If there was 6.4 per­cent growth, that would mark a sound ac­cel­er­a­tion from 5.7 per­cent in April-June, but still lag China´s 6.8 per­cent and Philip­pines´ 6.9 per­cent for the three months through September.

The data could help Prime Min­is­ter Naren­dra Modi, who is fac­ing crit­i­cism over the hasty July launch of Goods and Ser­vices Tax (GST) - aimed at trans­form­ing In­dia´s 29 states into a sin­gle cus­toms union - but hit­ting mil­lions of small busi­nesses due to com­plex rules and tech­ni­cal glitches.

Big com­pa­nies have largely ad­justed to the changes while ben­e­fit­ing from re­duced lo­gis­tics costs. Prom­i­nent In­dian firms had their best profit growth in last six quar­ters in July-September.

The re­sults are an in­di­ca­tion that firms are start­ing to re­cover af­ter be­ing hit ear­lier this year by un­cer­tainty tied to the roll­out of a new tax and a shock ban on cash in late 2016. In July-September, auto sales, man­u­fac­tur­ing, elec­tric­ity gen­er­a­tion grew more quickly than in the pre­vi­ous quar­ter.

“We ex­pect a grad­ual re­cov­ery led by the in­dus­trial sec­tor as busi­nesses ad­just to the GST regime,” said Aditi Na­yar, an econ­o­mist at ICRA, the In­dian arm of Moody´s In­vestors Ser­vice.

On Nov. 17, Moody´s up­graded In­dia´s sov­er­eign credit rating for the first time in nearly 14 years, say­ing con­tin­ued progress on eco­nomic and in­sti­tu­tional re­forms would boost its growth po­ten­tial.

It ex­pects the econ­omy to grow 6.7 per­cent in the fis­cal year end­ing March 31, and 7.5 per­cent the fol­low­ing year. Many pri­vate-sec­tor econ­o­mists ex­pect faster growth in the cur­rent quar­ter and January-March as con­sumers and busi­nesses step up spend­ing and global re­cov­ery gains trac­tion.

Ur­jit Pa­tel, gov­er­nor of the Re­serve Bank of In­dia (RBI), said last month that signs of an up­turn were vis­i­ble and growth was likely to top 7 per­cent in those quar­ters. Modi´s ad­min­is­tra­tion hopes the rat­ings up­grade can at­tract more for­eign in­vestors, who pumped $15 billion into In­dian eq­ui­ties in July-September, up 44 per­cent from the pre­vi­ous quar­ter.

The main NSE share in­dex is up 27 per­cent in 2017. Still, the world´s sev­enth largest econ­omy, which grew at more than 9 per­cent a year from 2005 through 2008 is far from fir­ing on all cylin­ders. Do­mes­tic de­mand and pri­vate in­vest­ments re­main weak. Af­ter front-load­ing state spend­ing in the fis­cal year´s first half, Fi­nance Min­is­ter Arun Jait­ley has lim­ited room to spend amid slow­ing rev­enue growth.

Fi­nance Min­istry of­fi­cials hope the cen­tral bank will cut in­ter­est rates soon, but an­a­lysts say that ris­ing global oil prices, which could pinch con­sumers through higher in­fla­tion, may in­stead force the RBI to hike in the sec­ond half of 2018, dent­ing growth mo­men­tum.

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