Following the visible change in growth trajectory, the government of India said the economy has overcome the impact of demonetisation and goods and services tax, and is poised to close the year within the 6.75 to 7.5 per cent range. Finance Minister Arun Jaitley said, “This (second quarter growth of 6.3 per cent) indicates that perhaps the impact of two structural reforms is now behind us and hopefully, in the coming quarters, we can look at an upward trajectory. The most significant aspect is the fact that this quarter's positive result is impacted by growth in manufacturing.”
The sector expanded 7 per cent in the September quarter as compared to 1.2 per cent in the previous three-month period. Jaitley, however, was comforted with the higher rate of investment. He said that the economy appeared “poised for a durable recovery going forward.” Finance Secretary Hasmukh Adhia said the second quarter numbers may see an upward revision as GST collection data is available to statisticians. Chief Economic Advisor Arvind Subramanian said he would stick to the range provided in the budget, adding that he expected the impact of low base, especially during the fourth quarter, to help propel growth during the current financial year.
He also acknowledged the price pressure in the economy, emanating from the global rise in the price of crude petroleum as well as higher prices of vegetables such as onions and tomatoes. Subramanian said, “We have a situation where on the crop side, especially oil seeds and pulses, the government took action, while perishable prices have moved up. It is an odd situation this year.” When asked about crude oil price and its impact on the fiscal situation, he said prices were 10-12 per cent higher than last year and were expected to moderate as shale supplies hit the market.
Meanwhile, a Goldman Sachs report has suggested that the Indian economy is likely to grow at 8 pet cent in 2018-19 as the massive bank recapitalisation will help revive the long-stalled credit demand and private investments. It said the Rs 2.11 trillion bank recapitalisation of public sector banks announced by the government last month and a likely recovery in earnings are also likely to drive up the stock markets and has set the Nifty target of 11,600 by next December. The report said, “We project above-consensus real GDP growth of 8 per cent in 2018-19, while we see a growth of 6.4 per cent for 2017-18, as the negative impact from shocks (demonetisation and GST implementation) this year fade and the bank recap programme unlocks credit and private investment growth.”
It said CPI inflation is likely to rise above the mid-point of the RBI's target of 5.3 per cent in 2018-19 due to a pick-up in food and commodity prices.
