India's Q2 economy will be better than Q1, says Nomura

The Japanese financial major says GST will help India see better growth in the 2nd quarter

India's second quarter growth will be better than its first quarter of 6.1% and may settle in the range of around 6.5-7%, Japanese financial services major Nomura has forecast here today.

The financial major said that the short-term impact of Goods and Services Tax (GST) disruption will help India see better growth in the second quarter.

"I think 6.1% GDP growth should be the bottom of the growth front and we should see a gradual pickup in the growth numbers," said Sonal Varma, managing director and India chief economist at Nomura Singapore Pte Ltd.

"More gradual (recovery) in the second quarter, may be around 6.5-7% — in that range, but more stronger post-June," said Varma during Nomura's economic briefing held in Singapore.

"The indicators that we are seeing so far in terms of high frequency numbers — car sales, two-wheeler sales, tractors sales, the momentum that we are seeing in terms of coal production, power generation are suggesting that on an average the June quarter will still be better than the first quarter," she said.

But disruption is expected as GST is implemented from July 1.

She said consumers would expect prices to come down after GST comes into being while wholesales would keep low levels of inventories during the transition period.

Also, there has been some cut back on production which will have some impact on the industrial production numbers in particular, Varma said.

Overall, Nomura expects 7% GDP growth this year and 7.8% in 2018, citing improving fundamentals backed by business-oriented reforms.

"The outcome of these (reforms) policies over the next 5 to 10 years, we see India's potential growth which had moderated post the global financial crisis. We are quite positive," said Varma on India's economic outlook.

Hit hard by demonetisation, India lost the tag of the fastest growing economy to China in the March quarter with a GDP growth of 6.1%, pulling down the 2016-17 expansion to a three-year low of 7.1%.

The GDP growth in 2016-17 is slowest in two years. It was 8% in 2015-16 and 7.5% in the previous year.

The growth for the 2016-17 financial year has slowed down despite very good showing by the agricultural sector.