CPI inflation eased to 2.2 per cent in April-June period from 5.7 per cent in Q1 FY17
Mumbai: The country's gross value added (GVA) growth is likely to slow to 6.3 per cent in April-June quarter of FY17 from 7.6 per cent in the year-ago period, affected by challenges in implementation of the GST and as rupee appreciated, says a report.
The growth of the GVA at basic prices, excluding agriculture, forestry and fishing, public administration, defence and other services, is likely to be at 4.8 per cent in the first quarter, in line with the modest 4.8 per cent rise in gross corporate income tax collections, the report by rating Icra stated.
"The disruption in production schedules and discounts offered ahead of the implementation of the goods and services tax (GST); the impact of appreciation of the rupee relative to the dollar on export earnings.
Specific issues related to sectors such as banking and telecom are likely to weigh upon the GVA growth in first quarter of FY18, offsetting the impact of the up-fronting of the government's expenditure and a healthy rabi harvest of several crops," the report said.
"We expect the GVA growth to decline to 6.3 per cent in the first quarter from 7.6 per cent last year same period, while improving in sequential quarters, relative to the initial estimate of 5.6 per cent for the fourth quarter of FY17," it said.
The rating agency expects GDP to rise by 6.1 per cent in year-on-year terms in the first quarter, lower than the GVA expansion, led by an anticipated slowdown in growth of taxes on products less subsidies on products.
"This is likely to follow from the sharp increase in the government's subsidy expenditure in the just-concluded quarter, even as indirect taxes recorded a healthy growth," Icra said.
Industrial growth is expected to slow to a modest 3.9 per cent in the quarter from the healthy 7.4 per cent in the year-ago period, led by manufacturing, electricity, gas, water supply and other utility services and construction.
The agency expects the services sector growth to ease to 8.2 per cent in the period from 9 per cent in Q1 FY17, led by the weak trend in earnings, displayed by two of the key sub-sectors, namely banks and telecom, as well as the sluggish momentum recorded by non-food bank credit, commercial paper.
However, services sector growth would have been boosted by the 26.8 per cent expansion in the central government's non-interest revenue expenditure in that quarter, following the frontloading of spending after the early presentation of the Budget for FY18.
It further said while the average CPI inflation eased to 2.2 per cent in April-June period from 5.7 per cent in Q1 FY17, the average WPI inflation posted a turnaround to +2.3 per cent from -0.7 per cent, which is likely to affect the deflators for various sectors.