DBS sees festive-driven demand and good monsoon in India
The Indian government’s policy fine-tuning is likely in the coming weeks as it has just done so with Goods and Services Tax (GST), said Development Bank of Singapore (DBS) in its daily economic report on 9 October 2017.
Incoming high-frequency data are, meanwhile, likely to improve, it expected. August industrial production due this week is poised to extend gains from July’s 1.2%.
As GST-driven distortions fade, expectations are for festive-driven demand, good monsoon, remonetisation and higher disposable incomes due to wage/allowances to provide support to the production outlook, it said.
FY18 production is nonetheless likely to be around 2%, slower than last year’s 4.6%, believes DBS.
More such pockets of improvement are likely in high-frequency data prints, including core industries index, PMIs (Purchasing Managers Index) and auto sales. This should see growth average 6-7% in 2HFY18 after marking a trough in the June2017 quarter, said the bank.
While this still implies that full-year growth will be at a three-year low, the urgency to adopt pump-priming measures is lower. Longer-out, the onus is on the government to support growth, once the impact of GST uncertainty rolls off.
More emphasis will be on recovery of non-performing assets and rebuilding banks’ balance sheets, according to DBS.
Further rate cuts seem unlikely, with the budget to modestly miss its FY18 targets owing to a revenue shortfall. A less rigid deficit target will also reduce the extent to which spending needs to compressed in 2H FY18.
It noted that the government has just relaxed a handful of GST restrictions. Key changes included: a) lowering of rates on 27 items and 12 services, b) raising the threshold for the composition scheme to INR 10mn, c) Taxpayers of upto INR 15mn turnover will be allowed to file returns every quarter instead of monthly, lowering compliance costs, d) a host of measures for exporters to ease working capital issues, including quicker refunds, introduction of an e-walled payment facility, amongst others. fii-news.com
