GVA growth likely to improve to 6.8 per cent in Q3 led by services: Report

After a muted first half, the gross value added (GVA) growth is likely to improve to 6.8 per cent in the third quarter, helped by an improvement in the services and industrial sectors, says a report.

In the second quarter, GVA growth was at 6.1 per cent.

"We expect GVA growth at basic prices in year-on-year terms to print a sequential recovery of 6.8 per cent in third quarter led by the services (at 8.8 per cent from 7.1 per cent) and industry (at 6.8 per cent from 5.8 per cent), even as growth of agriculture, forestry and fishing (to 1.5 per cent from 1.7 per cent) is likely to ease," Icra said in a report today.

Headline GVA growth in the third quarter is likely to mildly exceed 6.7 per cent printed a year-ago.

During the first half of this fiscal, economic activity remained muted, partly on account of the structural transition to goods and services tax (GST), but signs of a pick-up in growth are starting to appear.

The rating agency's principal economist Aditi Nayar said higher growth in volumes in manufacturing and some of the services sub-sectors and in the government's expenditure, a favourable base effect and an improvement in corporate earnings are expected to contribute to a sequential recovery in the y-o-y growth of GVA at basic prices in the third quarter.

Growth in the services sector is likely to record a base-effect led pick-up to nearly 8.8 per cent in Q3 from 7.1 per cent in Q2, reflecting the improvement recorded by indicators such as bank credit, cargo handled at major ports, passengers carried by domestic airlines and foreign tourist arrivals.

A favourable base effect would continue to support volume growth in sectors such as manufacturing, construction, trade, hotels, transport, communication and services related to broadcasting, and financial, real estate and professional services in the fourth quarter, the report said.

The rating agency expects GDP and GVA growth to improve to around 7.5 per cent in the fourth quarter.

Notwithstanding an expected pick-up in H2, Icra expects GVA growth to ease to 6.5 per cent in FY18 from 7.1 per cent in FY17, while GDP growth is expected to decline to 6.7 per cent in FY18 from 7.1 per cent in FY17.