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MOSL: ECOSCOPE | 2Q 2018: India’s Quarterly Economic Outlook-Growth forecasts revised up, inflation forecast lowered

ECOSCOPE | 2Q 2018: India’s Quarterly Economic Outlook; Growth forecasts revised up, inflation forecast lowered

• Taking into consideration the additional data released in the past quarter, we have revised up our real GVA growth forecast for both FY18 and FY19 by 30bp to 6.4% and 6.7%, respectively. Inflation, however, is expected to average 4.4% in FY19, much lower than 5.1% estimated earlier.
• Our macroeconomic forecasts for the Indian economy are based on a) impact of growing trade protectionism on the US (and global) economic/trade recovery, b) impact of the possible ~25% hike in the minimum support price (MSP) of Kharif crops as the government looks to fulfill its promise of at least 1.5x cost as MSP (based on A2+FL) and c) confirmation from state budgets of 2018-19 that the fiscal support to economic activity has peaked in FY17 and is set to weaken further in FY19. We have discussed these three themes in this note.

What has changed since the January 2018 Quarterly Economic Update?
Real sector: Driven by better-than-expected 3QFY18 data and revisions in previous quarters’ data, we expect real GVA/GDP to grow 6.4%/6.7% in FY18, better than previously expected. Furthermore, real GDP is expected to grow 6.9%/7.2% in FY19/FY20, slightly better/worse than 6.8%/7.4% expected previously.

CPI inflation: With CPI consistently coming in below our expectations, we have revised down our FY19/FY20 forecast from 5.1%/4.7% to 4.4%/4.5%. We, however, continue to expect a prolonged pause from the Reserve Bank of India (RBI).