New Delhi: India’s GDP growth rate is expected to rise to 6.2 per cent in the second quarter of the current fiscal as the adverse impact of demonetisation and GST appears to be bottoming out, Ficci’s latest Economic Outlook Survey said Monday.
The growth rate had dipped to a 3-year low of 5.7 per cent in the April-June quarter of 2017-18.
The Central Statistics Office (CSO) is scheduled to release the economic growth data for the July-September quarter November 30.
The economists participating in the survey also mentioned that the government should continue with its emphasis on productive capital investments in the social and physical infrastructure space even if this requires some calibration of the fiscal deficit target, the industry body said.
The projected fiscal deficit number for the current financial year is likely to be slightly higher at 3.3 per cent of the GDP in the current fiscal as against the government’s target of 3.2 per cent, it said.
GDP growth is expected to improve to 6.2 per cent in July-September period of 2017-18 and further improve to 6.7 per cent in the third quarter.
“The slowdown in the economy due to demonetisation and the adjustment impact of GST implementation seems to be bottoming out and as the new indirect tax regime stabilises, the economy would see an improvement in its performance,” it said.
Even as these steps are taken by the government, the economists participating in the survey emphasised that reviving consumption, particularly in the rural and semi-urban areas, will be important to give a boost to overall demand in the economy.
The survey also indicated that the wholesale price based inflation for 2017-18 is likely to be around 2.8 per cent, although retail inflation would be a bit higher at 3.4 per cent.
“Given this outlook and the fact that supply side issues are largely responsible for the inflation movement in case of India, some of the economists mentioned that inflation targeting by the central bank may not be the correct approach,” the survey said.
Ficci further said that it was also suggested that RBI can undertake a reassessment of various loan rates and other ratios based on their historical trends and corresponding economic impact to identify a possible way of promoting credit take-off across various sectors.
As per the survey, most of the economists felt that linking the pricing of loans to an external benchmark will make the monetary transmission mechanism more effective.
In the current MCLR regime, loan pricing decisions by banks are based on internal factors such as cost of funds which are not sensitive to changes in the policy rates.
“It was felt that the shift to an external benchmark will improve the response time and will bring greater flexibility in the lending rates of banks,” the survey said.
Also, to enable banks to manage the pricing of their assets and liabilities in case of a move-over to an external benchmark, economists suggested that RBI should consider allowing deposit rates to be linked to such an external benchmark as well.
The survey, Ficci said, was conducted in October 2017 among economists in industry, banking and financial services. (PTI)
