GDP growth to remain flat at 7.2% in 2017-18

A modest pick-up to 7.5% expected in next fiscal

by Manasi Swamy

India’s real GDP (at 2011-12 market prices) growth is expected to remain almost flat at 7.2 per cent in 2017-18, as compared to the 7.1 per cent growth clocked in 2016-17. Good rainfall and disbursement of 7th pay commission rewards would likely give a positive push to the economy, while weakness in investment demand, fiscal consolidation and widening of current account deficit would act as dampeners.

Like last year, the economic growth in 2017-18 would be driven by consumption demand. Consumption demand (termed as PFCE in national accounts statistics) is expected to grow by eight per cent in 2017-18. This will be lower than the 8.7 per cent growth registered in 2016-17.

A normal monsoon for the second consecutive year augurs well for the farm output. However, this is unlikely to give a major lift to the fortunes of the farming community as prices of most agro-commodities rule below their year-ago levels. And, these are unlikely to move up sharply in the near future. State governments of Uttar Pradesh, Maharashtra and Punjab have announced farm loan waivers, but these would take time to come into effect and their impact on the rural economy will be felt largely during the rabi and kharif season of 2018.

Also, there is no increase in the Central Government’s fund allocation to MGNREGA this year compared to the revised estimates of last year.

Farmers and agricultural labourers account for around 45 per cent of the rural household expenditure in India, while small, traders & wage labourers account for another 15 per cent, as per the pan-India household survey conducted by CMIE. A sedate growth in incomes of these two large sections of the rural economy is expected to keep the rural consumption demand subdued.

Household spending in urban India is dominated by salaried people. The 7th pay commission rewards are expected to provide a boost to the urban spending. A slowdown in the IT industry and inadequate job creation in the private sector, however, are expected to act as deterrents. The net impact would not be very encouraging for the urban consumption demand.

Also, since demand is not tangible, the Central Statistics Office (CSO) estimates PFCE by using commodity flow approach. They subtract intermediate consumption in agriculture, manufacturing and other industries, stock variations, consumption on government account and gross fixed capital formation from total availability of output. Since India saw a bumper agricultural output last year, the CSO pegged the growth estimates for PFCE for 2017-18 at a nine-year high of 8.7 per cent. The robust growth in agricultural production last year had come after two consecutive years of drought. Although agricultural output is expected to be healthy this year, it is unlikely to post any rise on top of last year’s bumper crop. This flat growth in agricultural produce will result in PFCE showing a lower eight per cent growth in 2017-18 compared to the 8.7 per cent growth posted in 2016-17.

The growth in government expenditure is expected to decelerate sharply from a robust 20.8 per cent to 12.1 per cent in 2017-18. The government does not have room to spend more unless it decides to deviate from its fiscal consolidation path.

The growth in investment demand is expected to improve a tad in 2017-18 owing to the government’s focus on infrastructure spending. The private sector, on the other hand, will not take much interest in capacity expansion given the fact that there is ample capacity lying idle in most industries. Besides the excess capacity built-up, weak demand, leveraged balance sheets and drop in returns on capital employed (ROCE) are discouraging companies from going in for fresh capital investments.

India’s current account deficit, which was shrinking for the last four years, is set to widen in 2017-18. A rise in gold imports, higher average unit value of POL imports and weakness in dollar earnings of the Information Technology (IT) sector are likely to result in a deterioration of goods and services trade balance. We expect India to see an outflow of Rs.1.1 trillion in 2017-18 on this account, as compared to Rs.827 billion in 2016-17. This will dent the GDP growth.

The economy is expected to show a mild pick-up in the next fiscal year 2018-19, recording a 7.5 per cent growth in real GDP. The farm loan waivers announced by state governments are expected to start showing their impact on demand at the fag end the current year. Also, the full year impact of GST will be seen in 2018-19. We expect the government to go for populist measures and step up its spending in view of the 2019 general elections. Spending by political parties too is expected to rise at the end of the fiscal, thus providing an added boost to consumption demand.

Unemployment Rate
Per cent
5.7 +0.1
Consumer Sentiments Index
Base September-December 2015
92.8 -0.4
Consumer Expectations Index
Base September-December 2015
91.9 -0.3
Current Economic Conditions Index
Base September-December 2015
94.1 -0.5
Quarterly CapeEx Aggregates
(Rs.trillion) Mar 17 Jun 17 Sep 17 Dec 17
New projects 4.07 2.13 1.22 1.08
Completed projects 1.96 0.86 1.05 0.92
Stalled projects 0.74 2.67 0.67 0.93
Revived projects 0.86 0.30 0.29 0.23
Implementation stalled projects 0.33 0.69 0.73 0.58
Updated on: 18 Feb 2018 12:20PM
Quarterly Financials of Listed Companies
(% change) Mar 17 Jun 17 Sep 17 Dec 17
All listed Companies
 Income 10.2 9.7 7.9 12.1
 Expenses 11.9 10.0 9.0 12.9
 Net profit 16.4 -19.8 -16.8 -10.4
 PAT margin (%) 6.0 5.3 5.7 5.2
 Count of Cos. 4,469 4,454 4,426 3,985
Non-financial Companies
 Income 11.8 10.3 7.7 13.0
 Expenses 15.6 10.6 7.5 11.8
 Net profit -2.2 -25.2 -4.2 15.7
 PAT margin (%) 6.1 5.2 6.4 6.8
 Net fixed assets 6.9 9.2
 Current assets 2.7 78.8
 Current liabilities 8.9 11.0
 Borrowings 4.9 10.5
 Reserves & surplus 6.1 5.2
 Count of Cos. 3,453 3,439 3,408 3,095
Numbers are net of P&E
Updated on: 18 Feb 2018 12:20PM
Annual Financials of All Companies
(% change) FY14 FY15 FY16 FY17
All Companies
 Income 10.0 5.4 1.4 6.7
 Expenses 9.9 5.5 1.6 7.1
 Net profit -2.5 0.9 -12.9 18.8
 PAT margin (%) 3.1 3.1 2.8 5.6
 Assets 12.3 9.5 9.8 8.4
 Net worth 9.6 8.6 10.8 7.5
 RONW (%) 6.1 6.0 5.0 8.2
 Count of Cos. 24,506 24,447 22,230 10,161
Non-financial Companies
 Income 9.7 4.6 0.5 6.6
 Expenses 9.4 4.7 -0.1 7.7
 Net profit -3.1 -6.9 12.6 11.7
 PAT margin (%) 2.2 2.1 2.5 5.2
 Net fixed assets 11.7 13.2 15.4 7.5
 Net worth 8.2 7.1 11.2 5.5
 RONW (%) 5.1 4.8 5.3 8.9
 Debt / Equity (times) 1.1 1.1 1.1 0.8
 Interest cover (times) 2.0 1.9 1.9 2.8
 Net working capital cycle (days) 69 67 66 52
 Count of Cos. 19,752 19,893 18,615 7,888
Numbers are net of P&E
Updated on: 04 Feb 2018 9:54AM

Data added for HPI at Assessment prices and HPI at Market prices