OPEC Monthly Oil Market Report – September 2017
the GST implementation. However, the GST pushed the buying of gold up and manufacturing down.
Manufacturing companies sent out their old stocks to market, holding back on production. This brought down
manufacturing sector growth from 5.3% in 1Q17 to 1.2% in 2Q17. The reasons behind low GDP growth in
2Q17 include; the medium- and short-term shocks caused by demonetisation and the GST on private
consumption; poor consumer demand and low capacity utilisation.
Graph 3 - 16: Indian GDP growth
Graph 3 - 17: Indian inflation vs. repo rate
The fact that
Gross Value Added
(GVA) (GDP minus product taxes) growth in 1Q17 was the same as in
4Q16 suggests that the waning demonetisation impact was offset by rising anxiety over the GST. It seems
the decline in growth in 1Q17 is transitory and the economy will slowly move in an upward trajectory over the
next few quarters as the impact of demonetisation and destocking fades and the positive efficiency gains
from GST start kicking in. A normal monsoon, softer interest rates and inflation, and latent demand (demand
postponed due to demonetisation) will also support consumption-led growth in the remaining quarters of this
fiscal year. That said, the economy is likely to grow at a slower pace than 7.0% in fiscal 2017, and will be
largely consumption driven. Other macro parameters such as inflation, the current account deficit and the
fiscal deficit of the central Government will remain at comfortable levels. Stimulating the investment cycle
and tackling bad debt will be the key challenges in the current fiscal year. Investment growth did pick up in
1Q17 of this fiscal year, from a 2.1% decline in the preceding quarter, but it still trails overall GDP growth.
Two months ago, we saw gold (valuable) imports rise sharply. Household savings moving away from
physical assets, especially real estate, may not suit the economy. The second largest job creator after
agriculture is the real estate sector and construction growth has already tapered.
Graph 3 - 18: Indian GDP growth by demand side
Sources: National Informatics Centre (NIC) and
% change y-o-y
Consumer price index (CPI)
CPI lower target bond
CPI higher target bond
Wholesale price index (WPI)
WPI confort zone
Sources: Ministry of Commerce and Industry, Reserve Bank of
India and Haver Analytics.
1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 2Q 17
% change y-o-y
Sources: Central Statistics Office and Haver Analytics.