India May Grow 7.8%

India's growth may have slowed marginally in the first quarter of the fiscal year from the preceding three month period but the full year is expected to be better than the last, thanks to a consumption boost fuelled by a good monsoon and higher salaries and pensions owing to the seventh pay commission award.
April-June growth was pegged at 7.4%, according to the median of estimates in a 7-7.8% range by economists and research agencies polled, less than 7.9% in the fourth quarter of the previous fiscal. Full-year growth is seen at 7.8%, faster than 7.6% in FY16.
Private sector investment remains a laggard, economists said. “Around 8% growth is not possible until the investment cycle revives,“ said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank.  “It is a consumption-driven story in which urban demand will come from pay commission rewards and rural demand would get a boost from good monsoon.“
Industrial growth, as measured by the Index of Industrial Production (IIP), was a tepid 0.6% in the April-June quarter while capital goods output, a proxy for investment, fell 16.5%.
“The key factor that is holding up the acceleration of industrial growth is investment recovery,“ said Devendra Kumar Pant, chief economist at India Ratings, a Fitch Group company. CARE Ratings chief economist Madan Sabnavis echoed this. “We don't see much activity in industrial production. Only agriculture and government spending look better than last year,“ he said. “Without overstating the impact of the pay commission, full year growth could be around 7.8%. As for investment, the fall in capital formation at best will be arrested and major takeoff is not expected this year.“ There aren't too many other factors driving the economy .
“Additionally, fiscal constraints would prevent a sharp pickup in the government's direct investment in infrastructure,“ noted Aditi Nayar, senior economist at ICRA.“Also, persisting asset quality & capital adequacy concerns for public sector banks may constrain their ability to fund a sharper revival in economic growth.“
The eventual implementation of GST is likely to encourage the private sector to expand capacities, which will be crucial to ensure that the uptick in economic growth is durable, but that boost is some time away.

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