A recent report on Reuters mentions that India remained the fastest growing economy in the world during the last quarter, i.e. Q1 of 2017. As per a poll of economists of Reuters, India economy has bolstered with the help of an improved performance in the area of manufacturing and services. Notably, India’s Prime Minister, Narendra Modi had put a ban on the high-value currency notes, during November, last year. This obviously had a major impact on demand, a short-term one, but the nation has seen recovery in the private and public consumption both.
India Economy- Forecast
The poll by 35 economists showed a median forecast, according to which, the Indian economy saw a growth by 7.1 percent annually in the first 3 months of 2017. These forecasts ranged from 6.5 percent to 7.8 percent.
In the quarter ending on December 2016, the annual growth of India economy was at 7.0 percent. Whereas, during the period of January to March, the first quarter of 2017 (Q1), the growth was 7.9 percent.
From a year earlier, India’s industrial output INIP=ECI also saw a rise of 2.7 percent in March. This beat the median consensus of just 1.5 percent of growth in a poll by Reuters. Meanwhile, for most of the quarter of 2017, the services and factory activity also saw an expansion with a five-month high rise in March. This indicates that the effects of demonitization were not for a longer period of time.
Tushar Arora, a senior economist at the HDFC Bank said that the demonitization drive hardly showed an impact on the economic momentum, in the 2nd half of the Financial Year 2017 (FY17). Showing just a marginal slowdown, most of the high-frequency indicators were quick to recover from it, he adds.
Favorable Domestic Factors
Reuters also mentions that the acceleration of India economy is also partly driven by the favourable domestic factors; making India the fastest growing economy of the world. It significantly includes an improvement in the transmission of the past policy rate reductions of the Central Bank; into the bank’s lending rates, encouraging more investment.
Additionally, it is also expected that the infrastructure spending will support the growth. Also, if the monsoon showers are favourable enough, a higher agricultural output will also support growth of India economy.
Moreover, a nation-wide goods and sales tax- GST is introduced; which eliminates multiple sales taxes of a state, making it easier to do business in the nation. This new tax, the GST, is expected to be effective from July 1. With the introduction of the GST, the India economy expects to benefit from it for a higher level of growth.
The GST will boost the Indian GDP (Gross Domestic Profit) by at least 100 to 150 basis points; though it will not happen straight away after July 1, but at the end of FY18 (financial Year 2018), probably; said Karan Mehrishi, a leading economist at the SMERA Ratings Limited.