India’s economic growth remains promising has been saved
India’s economic growth remains promising
Inflationary pressure may re-emerge
- With indicators of industrial production, auto sales and investments showing a steady recovery, Indian economy is on the path to a strong growth
- The agriculture sector is expected to grow higher than the estimated 2.1% in the current fiscal year 2018-19
- However, the upside risks to inflation continue to remain a major challenge for the economy with rising oil prices, widening fiscal deficit and rising debt burden
New Delhi, 26 April, 2018: Deloitte’s “India Economic Outlook Report 2018”, released today, reveals that India’s growth prospects remain promising and the economy will continue to grow at 7.2% in 2018-19. The agriculture sector is also expected to grow higher than the estimated 2.1% in the current fiscal year on account of positive prospects on Rabi harvest and a normal monsoon, contributing significantly to the national GDP. Further, the gradual recovery in industrial production (IIP) bodes well for the economy, reflecting a possible strengthening of domestic demand and a further build-up in global trade activity.
Manufacturing sector rose 8.6% on a 3mma (3 month moving average) basis in Feb’18 compared to 9.1% rise as of Jan’18. The healthy increase in production levels is possibly a reflection of rising consumption demand as also suggested by an upswing in vehicle sales, cement and diesel. However, the report cautions that the increasing inflationary pressures, widening fiscal deficit and the rising debt burden could pose challenges to the economy.
Commenting on India’s growth potential, Anis Chakravarty, Lead Economist and Partner, Deloitte Touche Tohmatsu India LLP, said, “With the indicators of industrial production, investment demand, auto sales and exports showing recovery, India’s growth outlook remains promising and is expected to strengthen further in the next few quarters. However the extent of recovery will be dependent also on global factors as well as the pace of economic and structural reforms. Reviving consumer demand and attracting more private investment remains the key to maintaining India’s growth momentum and accelerate it further.”
India’s exports, despite having seen some deceleration in the recent months have seen an overall healthy growth at 9.9% for FY17-18 as compared to a rise of 5.2% in FY16-17. On the other hand, non-oil and non-gold imports showed considerable strength over the better part of the year, growing at a double digit pace. It came in at 19.1% for the entire year FY17-18 against an increase of merely 1.6% in FY16-17. The uptick in imports could also be a result of restocking. If this growth is sustained, then it could be another proxy for indicating the resilience of domestic demand and growing consumer demand.
RBI has maintained a neutral stand since August of last year and kept the rates unchanged, citing concerns on inflation as well as spill-over risks from global policy changes, particularly the Fed rate normalization. Even now, the outlook on monetary policy decisions continues to remain data dependent. While current data on inflation has been reassuring, risks remain tilted to the upside given expectations of higher crude oil prices in addition to further hardening of domestic consumption, and risks of a higher fiscal deficit. Separately, the 10-year yields on government securities have remained at elevated levels.
India has already made a strong comeback after period of slow-growth, regaining the tag of “fastest growing economy,” in the world. In addition, IMF has officially stated that India is now the sixth largest economy in the world. With demand expected to reaccelerate, the probability of the economy to cross the 8% growth rate rubicon is dependent on the efficacious implementation of structural and infrastructure related reforms.
Notes to the editor for reference purposes only:
This press release has been issued by Deloitte Touche Tohmatsu India LLP
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