ICRA expects the growth of the Indian GDP and the gross value added (GVA) at basic prices in year-on-year (YoY) terms to improve substantially to 7.5% and 7.4%, respectively, in Q1 FY2019, from 5.6% each in Q1 FY2018, in line with the Monetary Policy Committee's assessment of a narrowing of the output gap. Given the various risks posed by higher commodity prices and interest costs, and the looming threat of trade wars, ICRA continues to expect a shallow recovery in the GDP and the GVA growth to 7.1% and 7.0%, respectively, in FY2019, from 6.7% and 6.5%, respectively, in FY2018.
Aditi Nayar, Principal Economist, ICRA, said, ''The pickup in the YoY GVA growth in Q1 FY2019, relative to Q1 FY2018, is expected to be led by the industry (to +9.4% from +0.1%) and agriculture (to +4.5% from +3.0%), offsetting some weakening in the momentum for the services sector (to +7.0% from +9.5%).
''The improvement in the growth of volumes and the healthy earnings reported by corporates, which partly reflects the base effect related to the transition to the Goods and Services Tax (GST), is likely to boost the GVA growth of manufacturing to double-digits in Q1 FY2019. Rural sales appear to be on an improving trend, and the outlook remains favourable, driven by the revision in minimum support prices (MSPs) and the expected thrust on the agri-economy. Some sectors such as automobiles, consumer goods, paints and FMCG undertook price hikes in Q1 FY2019 to pass on the rise in raw material costs, although companies in sectors such as aviation and cement were unable to fully pass through the higher costs of key raw materials, such as fuel and petcoke, respectively. Overall, the manufacturing GVA is expected to grow by a considerable ~11.0% in Q1 FY2019 in contrast to the de-growth of 1.8% in Q1 FY2018,'' Nayar added.
The 9.5% YoY rise in the output of capital goods driven by a favourable base, and the 27.3% expansion in the Government of India's (GoI's) capital spending, may boost the growth of gross fixed capital formation (GFCF) in Q1 FY2019. ''While there is a perceptible improvement in sentiment, it is yet to translate into a broad-based pickup in the investment cycle, as corroborated by the YoY decline in the value of new projects and completed projects in Q1 FY2019,'' added Nayar.
Given the pickup in mining volume growth, led by a turnaround in coal, as well as the rise in commodity prices, ICRA expects mining and quarrying GVA growth to rise to 6.5% in Q1 FY2019 from the low 1.7% in Q1 FY2018. Moreover, ICRA expects the construction GVA growth to improve sharply to ~8% in Q1 FY2019 from the muted 1.8% in Q1 FY2018, based on the trend in its inputs, like cement and steel consumption, and activity in the infrastructure sector including affordable housing. However, real estate and industrial capex is yet to pick up and consumer sentiment is yet to recover appreciably.
The Advance Estimates of crop production indicate a sharp expansion in the rabi output of pulses and rice, and a modest growth in that of oilseeds, coarse cereals and wheat. This is expected to boost the YoY growth of agriculture, forestry and fishing to ~4.5% in Q1 FY2019 from 3.0% in Q1 FY2018, despite the below-normal rainfall and a YoY decline in reservoir levels during Q1 FY2019.
Service sector growth is expected to dip to ~7.0% in Q1 FY2019 from 9.5% in Q1 FY2018, led by the decline in growth of the GoI's non-interest revenue expenditure, bank deposits (reflecting the impact of remonetisation), air cargo traffic and diesel consumption. In contrast, other indicators such as sales of commercial vehicles, service sector exports, as well as the combined growth of commercial paper, corporate bonds and bank credit to large industries and services, recorded a pickup in growth in Q1 FY2019 relative to Q1 FY2018.
