Gold Silver Reports (GSR) – Goldilocks Economy – The Indian economy is expected to have grown at a stronger pace in 2018-19, as disruptions due to the introduction of the Goods and Services Tax settled down. Despite continued volatility in some high frequency indicators like the manufacturing PMI, most economists believe that the economy is recovering steadily.
The MPC, in February, projected gross value added growth at 7.2 percent in the financial year 2018-19. Devendra Pant, chief economist at India Ratings believes growth will be a touch stronger at 7.4 percent compared to an earlier estimate of 7.1 percent.
“From the production side, higher growth in agriculture (expectation of normal rainfall and assumption of even rainfall distribution over space and time) and industrial sectors is expected to push the overall economic growth. From the expenditure side, the boost is expected to come from both private and government expenditure coupled with green shoots emerging in investment spending,” Pant wrote in a report on Wednesday.
The rebound in growth is coming alongside moderate inflation, so far. Retail inflation in February came in below estimates at 4.4 percent. Some economists believes that FY19 inflation will also be below the RBI’s forecast.
“The path of inflation is also likely to be lower than MPC’s February ’18 forecast range of 5.1-5.6% in H1FY19 and 4.5-4.7% in H2,” wrote Saugata Bhattacharya, chief economist at Axis Bank in a note on Wednesday.
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According to Bhattacharya, inflation driven by increases in house rent allowance have been lower than expected. He, however, added that there are significant risks of inflation moving higher.
These risks may mean that the MPC will remain watchful and ready to raise rates during the course of the year. At the last meeting, one of the six committee members had voted for a rate hike. Markets will be watching to see if any more members move into the rate hike camp or if the MPC’s stance moves away from neutral. – Neal Bhai Reports (NBR) INDIA
