GVA expected to rise by 6.9 pct in Q4 FY2017 aided by remonetisation: ICRA

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Credit rating agency ICRA expects Indian GDP and gross value added (GVA) at basic prices to expand by 7.1 percent and 6.9 percent, respectively, in year-on-year (YoY) terms in Q4 FY2017.

While the pace of growth of GDP and GVA in Q4 FY2017 is expected to be inferior to Q4 FY2016 (8.4 percent and 8.1 percent, respectively), the gradual remonetisation would result in some improvement in sequential terms relative to Q3 FY2017 (7.0 percent and 6.6 percent, respectively), which was affected by the note ban.

However, the GDP and the GVA levels and growth rates from FY2013 onwards may undergo a material revision, taking into account the new series of the Wholesale Price Index (WPI) and Index of Industrial Production (IIP).

"Benefitting from the gradual remonetisation, GVA growth is likely to improve to 6.9 percent in Q4 FY2017 from the initial estimate of 6.6 percent for Q3 FY2017, while remaining weaker than the robust 8.1 percent in Q4 FY2016. Our forecast of a 6.9 percent GVA expansion in Q4 FY2017 builds in a healthy 8.8 percent YoY growth in services, and moderate rise of 5.4 percent and 4.0 percent, respectively, in industry and agriculture, forestry and fishing," said Principal Economist ICRA, Aditi Nayar.

The agency expects the services sector to record a robust growth of 8.8 percent in Q4 FY2017, boosted by the double-digit rise in a variety of sub-sectors such as air cargo traffic, bank deposits, corporate bonds, commercial paper as well as the Central Government's non-interest non-subsidy revenue expenditure.

Industry is expected to record a moderate growth of 5.4 percent in Q4 FY2017, led by a 7.5 percent expansion in manufacturing GVA, reflecting the trend in earnings. Given the sequential dip in commodity prices and an unfavourable base effect, ICRA expects mining and quarrying to record a GVA growth of ~5.0 percent in Q4 FY2017, lower than the mining output growth of 7.7 percent indicated by the IIP for that quarter.

Moreover, ICRA expects growth of the construction GVA to print at ~1.0 percent in Q4 FY2017, somewhat higher than the 0.5 percent rise in the infrastructure/construction goods index of the IIP for that quarter, given the lingering impact of the note ban on this sector.

"The new WPI and IIP data, could lead to revisions in GDP and GVA levels and growth rates from FY2013 onward, at constant prices. In particular, the FY2017 growth rates may differ materially from the second advance estimates released by the CSO in February 2017. Furthermore, some additional data on the impact of the note ban on the informal sectors may result in a sharper dip in growth in H2 FY2017, relative to the revised levels for H1 FY2017," added Nayar.

The new WPI series indicates a sustained trend of lower annual inflation relative to the dated 2004-05 base. This revision in the WPI inflation rates would affect the GDP and GVA deflators, and is likely to lead to an upward revision in the level of the real GDP and GVA series for the recent years, particularly for those sectors for which nominal earnings or value addition data are deflated using the WPI.

Accordingly, the rate of growth of GDP and GVA may also undergo a change. Moreover, the new IIP series indicates that volume growth in the industrial sector in the last five years has not been as weak as previously estimated. This may result in some upward revision in growth for recent years, for those informal sub-sectors, whose growth is being estimated using the trend in the IIP. (ANI)
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