SBI Report: Q2 GDP Growth Estimated To Be 6.4 Per Cent; Annual Rate Could Touch 7 Per Cent

The gross domestic product (GDP) growth numbers for first quarter of Fiscal Year 2017-18 raised a storm of debate over Prime Minister Narendra Modi government’s economic policies. Growth decelerating to 5.7 per cent created a sense of panic and uncertainty even among the sympathisers and well wishers of the government. In growth slowdown, critics got another stick to beat the central government with. The economic punditry reached a crescendo soon after the numbers were out and the majority of the experts clamoured for growth stimulus.

However, with second quarter numbers round the corner, a sense of calm seems to have set in as lot of economic indicators point towards growth recovery. Demonetisation impact seems to have subsided almost completely whereas revenue from Goods and Services Tax (GST) look steady which led the government to cut taxes substantially. These two were big factors in poor first quarter numbers. Now, that tough patch seems to be in distant past.

The economists at State Bank Of India (SBI) in their Ecowrap report have said that second quarter GDP growth is likely to trend higher and might be in at 6.3-6.4 per cent band (Gross Value Added at 6.1-6.2 per cent) with a downward bias.

A Reuters poll of 52 economists also revealed that the growth is likely to accelerate to 6.4 per cent in September quarter.

According to the SBI Composite index which tracks the manufacturing activity in the country, the IIP Manufacturing output grew by 3.4 per cent (10 month high), Mining by 9.4 per cent (five month high) and Electricity production grew by 7.9 per cent in September 2017, taking IIP growth for September at 3.8 per cent.

Sectors like trade, hotels, transport and communication which were impacted harshly by demonetisation are seen clocking a five-quarter high growth rate of 11.1 per cent. The below table shows how sub segments of the aforementioned sectors have registered an uptick in September quarter.

SBI report further notes that corporate GVA and Manufacturing sector GVA are closely related and since corporate GVA recorded negative print of 8.4 per cent Year on Year (YoY), manufacturing GVA stood at mere 1.2 per cent. In the second quarter, SBI report estimates corporate GVA to clock 3.83 per cent growth after observing Q2 numbers of 2795 companies that have declared results. Hence, it is hopeful, this will be reflected in manufacturing GVA as well.

The Ecowrap report also mentions three key parameters - Net Sales, Profit before interest, deduction, and Tax (PBIDT) and Profit after tax (PAT) - on which 2183 companies have registered impressive growth in sectors such as Air Transport, Trading, Non-ferrous metals, mining, automobiles, etc.

Finally, the report concludes, as it had done earlier, that the final annual GDP growth rate could touch seven per cent on the back of revisions in GDP growth in last fiscal. CSO annual projection was 7.1 per cent for last fiscal but the SBI report expects the number to be around 6.5 per cent and this would push the current fiscal growth rate to seven thanks to low base effect.