Economy may clock 7.6% growth for Q3 FY16: India Ratings

Festive demand and favourable base effect to be beneficial, the ratings agency says

Benefiting from festive demand and favourable base effect, the Indian economy may have expanded by 7.6% in the third quarter that ended in December 2015, according to India Ratings.

The economy grew by 7.4% in second quarter that ended in September 2015. The government is slated to release gross domestic product (GDP) data for third quarter of fiscal year 2016 on Monday. 

Devendra Pant, chief economist & head public finance, India Ratings & Research said growth is likely to get support from a favourable base effect, as GDP in third quarter of fiscal year 2015 grew by 6.6%.

Also, domestic demand witnessed during the festival season is expected to support growth in the 3QFY16, even as global headwinds have had an adverse impact on manufacturing and exports, the ratings agency said.

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The investment activity is muted due to low capacity utilisation in several manufacturing sectors, highly-leveraged balance sheets of infrastructure companies and stretched balance sheets of banks.

The investment activity, though still insipient, is slowly picking up. The onus of reviving the investment cycle under such circumstances has therefore fallen on the government. 

It did that by increasing government capex by Rs 70,000 crore over FY15 (revised estimates) in FY16 Budget.

While revival of the capex cycle will take a while, there is higher hope of a revival in consumption demand due to falling inflation and monetary easing.

Consumer price inflation (CPI) averaged at 5.3% during the December quarter and the Reserve Bank of India slashed rates by 50 bps at the end of September 2015, India Ratings added.

The private consumption is likely to drive growth on the expenditure side while services like trade, hotel, transport, communication, financial services and real estate are likely to drive gross value added (GVA) growth in 3QFY16.