India's growth to be buoyed by the uptick in industrial sector which will offset the decline in services and farm sectors.
Domestic rating agency Icra has estimated the GDP growth to remain flat at 7.2% in the first quarter under the gross value added (GVA) calculation, thanks to an uptick in the industrial sector negating the decline in services and farm sectors.
Pick-up in the industrial sector will help offset the decline in services and agriculture and allied activities, which will help the economy grow at 7.2% in the June quarter, same as in the corresponding period last year, Icra senior economist Aditi Nayar said in a recent note.
This growth will be lower than what the GDP notched up in the March quarter at 7.4%.
"We expect a pick-up in industrial growth to 7.1% in the June 2016 quarter, up from 6.7% a year ago, to help offset a decline in growth of services and agriculture and allied activities.
"Accordingly, growth of GVA at basic prices is expected to remain steady at 7.2% in Q1, in line with the print for the year-ago period, albeit easing mildly from 7.4% recorded in Q4 of last fiscal year," Nayar said.
The rating outfit expects real manufacturing growth to have improved to 8% from 7.3% a year ago, supporting a pick-up in industrial growth.
"Corporate earnings for Q1 suggest the full impact of increase in commodity prices is yet to be felt in the current fiscal. As a result, earnings growth has been higher than revenue growth, and is also likely to have exceeded the volume trend revealed by the index of industrial production." That apart, growth of power generation improved sharply to 9% from 2.3% a year ago, led by a pick-up in thermal electricity generation growth which jumped to 13% from a paltry 1% in the corresponding period last fiscal year.
But contraction in the output of capital goods as well as the Central government's capex, will weigh on growth of gross fixed capital formation in the reporting quarter.
The agency expects the pace of growth of agriculture, forestry and fishing to ease to 2.2% from 2.6%. This is despite the boost from aggregate rise in production of rabi crops (led by wheat) even after drought- like conditions that prevailed in Q1 over most parts of the country.
Service sector growth is likely to report only 8.5% growth, down from 8.8% a year ago, following the moderation in expansion of bank deposits and credit and lead indicators of trade such as air cargo traffic and railway revenue from freight.
However, the turnaround in the services sector exports and the pick-up in growth of Government's non-interest revenue expenditure could have supported the overall services sector expansion in Q1, Icra said.
For the full year, the agency expects GVA growth to be 7.7% as it sees consumption to get a boost after the Pay Commission arrears reach Government employees and pensioners in the coming quarters, while good monsoons and the resultant uptick in kharif sowing coverage will also lead to a pick-up in agriculture output and rural demand.
Transition of the economy to the long-awaited GST is likely to encourage private sector to expand capacities, which is crucial to ensure a durable uptick in growth.
However, Nayar felt that the fiscal constraints will prevent a sharp pick-up in the Government's direct investment in infrastructure.
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