India's GDP growth estimate for the current financial is expected to drop from 7.4 per cent to 6.7 as the “combined effect of demonetisation and introduction of Goods and Services Tax (GST) proving to be more disruptive for the economy than was expected earlier.” In a brand new report, India Ratings said, “Sucking out the high denomination currency while failing to remonetise the economy quickly has in many cases proved fatal for the unorganised sector/small and medium enterprise where business transactions are heavily cash dependent.”
“The destocking by manufactures and the loss of liquidity for exporters due to delayed GST refund have affected business activities in the economy.” The report said that while the roll out of GST was fairly smooth and the first month revenue collections were encouraging, some stress points have emerged. The report said some of the recently taken initiative/reform measures such as insolvency and bankruptcy code, corporate debt restructuring mechanism, etc., hold the potential to improve the fundamentals of the Indian economy, however their impact will be visible only in the medium to long term.
“Overall, the current economic landscape is not very encouraging - index of industrial production grew at a dismal 1.2 per cent in July 2017, bank credit is showing no signs of a pick-up, consumer price index based inflation at 3.6 per cent in August 2017 is a five-month high, current account deficit at 2.4 per cent of GDP in IQFY18 is a four-year high,” the report said. “While the introduction of GST cannot be faulted on account of its eventual benefit to the economy, the same cannot be said about the impact of demonetisation.”
GDP growth will recover quarter-on-quarter in Q2 of FY18 with impact of demonetisation waning, teething problem arising out of GST implementation being looked into by the government and the festival season round the corner, India Ratings said. “However, it is unlikely to meet the agency's earlier projection of 7.4 per cent and will come down to 6.7 per cent during FY18.”
