India: Economy accelerated in the September quarter, recording a 6.3% yoy expansion - NAB

The Indian economy accelerated in the September quarter, recording a 6.3% yoy expansion and was the first increase in the growth rate following 5 consecutive quarters of deceleration, explains the research team at NAB.

Key Quotes

“NAB Economics is forecasting a 6.4% GDP growth rate in 2017, followed by a 7.1% expansion in 2018. In the December meeting, the RBI held the Repo rate at 6%– as expected. NAB is forecasting the Repo rate to remain on hold at 6%.”

“Outlook

• The Indian economy is expected to improve in the quarters ahead. The negative impacts of measures such as demonetisation and initial implementation difficulties relating to the GST are expected to fade away. Further, the benefits of policies such as the provision of GST relief for exporters and SMEs as well as the public sector bank recapitalisation program are expected to boost credit growth and economic activity. Modelling by NAB Economics using a ‘Leading indicator’ approach suggests that industrial production is expected to improve to around 6.2%yoy in the March quarter, 2018.
• Looking ahead, NAB Economics is forecasting a 6.4% annual average growth outcome for 2017, followed by a somewhat quicker 7.1% and 7.3% in 2018, 2019 respectively. 
• At the recent monetary policy meeting, the RBI forecast headline inflation around 4.3-4.7% over the September 2017- March 2018 period, a 10bp rise from the October meeting.  They highlighted both upside and downside risks to inflation. Higher fuel prices, possible higher pass-through of price rises by firms and fiscal measures pose upside risks. However, the negative output gap (growth below potential) and the lowering of the GST on a number of items would exert downward pressure.
• NAB Economics is forecasting the RBI to remain on hold at 6% for an extended period, consistent with its neutral stance.”