GDP likely to go below 6.5% in FY 18: SBI report

Growth in Q2 to remain muted due to lack of public expenditure

The outlook for India's economic growth, which plunged below 6 per cent in the first quarter of the current financial year, looks muted with the possibility of GDP going below 6.5 per cent in 2017-18, says a report.

According to an SBI Research report, growth of manufacturing and service sector may turn out weak in the July -September quarter as destocking in manufacturing sector activity has well continued in the second quarter of FY18, at least until mid-August.

India's economic growth slipped to 3-year low of 5.7 per cent in the April-June quarter as disruptions caused by demonetisation spilled over to the third straight quarter amid slowdown in manufacturing activities.

"The GDP estimates of Q1 show that impact of demonetisation has not withered completely. The steep decline in manufacturing output, both organised and unorganised bears testimony to this fact," the report said.

It further said that the unorganised sector which accounts for 41 per cent of the GDP has slowed considerably owing to two factors- climate and demonetisation- and it is not possible to detangle the individual impact of these.

Moreover, agriculture which accounts for 17 per cent of the GDP, is "showing signs of glut", it said.

This, in turn, will not translate into purchasing in rural areas, thus denting the demand, it added.

"The Q2 growth will also be muted and is almost like the Q1 as support from trade, hotel, transport and public expenditure (as the government already spent so much in Q1) will not be there," said the SBI research report, Ecowrap.

"Overall, it remains to be seen whether the GDP growth for FY18 stays below 6.5 per cent," it added.

Moreover, the agriculture growth in coming quarters will be muted as rainfall in the first three months of monsoon was hugely deficit in key foodgrain producing states like UP (-26 per cent), Punjab (-19 per cent), Haryana (-31 per cent), and MP (-20 per cent), it said adding the manufacturing and mining sector will show sluggish growth in the second quarter also.

On a positive side, the slowly picking credit growth in the eve of festival seasons will support the growth, the report said.