GVA growth to decline by 70 bps to 6.2% in Q3: Icra

Thanks to the note ban, the economy based on the gross value added (GVA) is set to slip to 6.2 per cent in the December quarter from 6.9 per cent a year ago, and GDP growth will decline to 6.5 per cent from 7.2 per cent, said domestic rating agency Icra today.
The slippages will be driven by the slowdown in growth of the industry and services, offsetting the healthy agricultural expansion during the period, the agency added.
"We expect the note ban to selectively affect some of the sub-sectors of the industry and services, dampening the expansion of the GVA at basic prices to 6.2 per cent in Q3 from 6.9 per cent a year ago," said Icra principal economist Aditi Nayar.

In contrast, the robust kharif harvest is expected to contribute to a turnaround in the performance of agriculture, forestry and fishing, which will expand at 5 per cent from the 1 per cent contraction a year ago, she added.
Also, services sector is expected to ease to 8 per cent from 9.1 per cent in line with moderation in fuel demand following the note ban. Similarly, industrial growth is set to more than halve to 4 per cent from 8.6 per cent, led by manufacturing, construction and mining and quarrying.
"Since the early estimates of quarterly GVA would rely heavily on available data from the formal sector, which is expected to have weathered the note ban better than the informal sector, the first estimates of December quarter GVA growth may not fully capture the impact of the note ban. Subsequent estimates that draw from wider data sources, may well revise Q3 growth downward," Nayar added.

Based on this and due to an unfavourable base effect, Icra expects real manufacturing GVA growth to decline to 5 per cent from the high 11.5 per cent, while continuing to exceed the volume growth displayed by the IIP.

Given the uptick in commodity prices and earnings of various corporates in the mining and commodity-intensive sectors, mining and quarrying sub-sector is likely to record a GVA growth of 6 per cent, higher than the mining output growth indicated by the IIP for the quarter, and de-growth in mining and quarrying GVA in the first half, she said.
She expects cash-intensive construction sector to be one of the worst hit sub-sectors due to demonetisation, as signalled by falling output of its key inputs such as cement.

Broadly, while net interest income of banks rose in
Q3, margins squeezed, as incremental deposits deployed towards relatively lower interest-bearing debt issued by the Centre and states, the rating outfit said.
The healthy kharif output, including the 9.9 per cent rise in foodgrain output, will boost agricultural growth in Q3, it said.
Overall, Icra expects agriculture, forestry and fishing to record a healthy growth of 5 per cent, a turnaround relative to the 1 per cent contraction a year ago.