Icra sees July-Sep GDP growth inching up to 6.3%, says Q2 period of adjustment after GST rollout

Mumbai: Economic expansion in terms of gross value added (GVA) is expected to improve to 6.3 percent in the three months to September from 5.6 percent in the previous quarter, on the back of a rise in industrial growth, says a report. Headline GVA growth, however, is likely to trail the 6.8 percent recorded in the second quarter of FY17. “We expect GVA growth at basic prices to record a sequential recovery to 6.3 percent in the second quarter from 5.6 percent in the first quarter, led by a broad-based pick up in industrial growth, even as agriculture, forestry and fishing and services are likely to moderate,” rating agency Icra said in a report on Tuesday. Industrial growth improved to over 5.8 percent in the period from 1.6 percent in the first quarter. [caption id=“attachment_3850223” align=“alignleft” width=“380”]  Reuters image[/caption] Icra’s principal economist Aditi Nayar said the second quarter was a period of adjustment for the economy, following the goods and services tax (GST) rollout. “Improved corporate earnings, partly reflecting milder discounts and higher commodity prices, and a pick-up in mining and electricity, are expected to contribute to a sequential recovery in Q2, offsetting the moderation in government spends and a tepid kharif harvest for several crops,” Nayar said. The significant turnaround in mining, a favourable base-effect, and supportive commodity prices, should boost mining and quarrying sub-sectors to a healthy 7.5 percent in the quarter, she added. Electricity generation also recorded an improvement led by the thermal segment. However, the real estate sector remains subdued on account of weak consumer sentiment, led by factors such as the note-ban-led drag, full implementation of the RERA and GST. This will cap construction sector remaining low at near 2.5 percent in the quarter. The agency expects services growth to ease to 7.3 percent from 8.7 percent in the first quarter. The government’s non-interest revenue spend slid sharply to 0.8 percent in Q2 from 26.8 percent in Q1, reflecting the waning effect of front-loading of spending. However, available data for 12 states indicates a pickup in their revenue spend grew to 14.1 percent in Q2 from 10.7 percent in Q1. The report expects GVA growth in public administration and defence to ease to around 6.3 percent from 9.5 percent in Q1, weighing upon the overall GVA expansion.