CHENNAI: With the repercussions of the two huge disruptions – demonetisation and GST rollout – beginning to ebb, expectations are that the Indian economy will accelerate again, soon.
While analysts say there are fewer risks going forward, GDP growth could continue to remain flat or even dip if these are not addressed.
According to Morgan Stanley, key risks to economic growth include the impact of a weaker monsoon on agricultural output and the pace of bad loan resolution, which would impact credit growth and, in turn, private capital expenditure. The last two remain unimpressive, with SBI Research pointing out that disruptions caused by demonetisation spilled over to the third straight quarter amid a slowdown in manufacturing activities.
“... impact of demonetisation has not withered completely. The steep decline in manufacturing output, both organised and unorganised bears testimony to this fact,” the report said.
The continued slack in private investment is one of the primary issues worrying economists. “We do not have private investment growing, therefore we can’t get GDP growth,” pointed out Arun Kumar, Malcolm S Adiseshiah Chair Professor, ISS.
In fact, while Nomura Global Markets Research points out the turnaround in private sector services suggests “the growth cycle will head higher once the GST effect fades”, the firm has revised its full-year growth forecast to 6.7 per cent from 6.9 per cent.
Economist Vijay Sardana, for example, says the government needs to bring confidence back to small-scale industries, most of which have been decimated by demonetisation and further hit by GST-related issues.
“A turnaround in the economy is unlikely before the next Budget and unless small-scale industries are encouraged to do more business, there will be very little sign of wealth creation and solid job gain,” he pointed out.