GDP may grow at 6.7% in FY 18, says Morgan Stanley

Economic activity in the country lost some pace amid GST related disruptions but underlying growth momentum remains strong and the country may clock 6.7% growth this fiscal, says a Morgan Stanley report.

India’s economic growth slipped to a three-year low of 5.7% in April-June, underscoring the disruptions caused by uncertainty related to the GST rollout amid slowdown in manufacturing activities.

After the slowdown in April-June quarter, many economists said there was a total collapse of consumer demand and hence consumer investment. But the brokerage firm said it did not want to read that as a trend.

“We are inclined not to read this as a sign of general slowdown in aggregate demand,” Stanley said in a research note.

“Indeed, we remain skeptical that the GDP statistics are fully reflecting the underlying growth trends in the economy,” it said, adding that a number of high frequency growth indicators are indicating that end demand is holding up well, and is running counter to the slowdown exhibited in the national accounts.

It said currency replacement programme and GST had led to a deceleration in growth momentum, they have already passed and going forward, the growth momentum will reassert itself.

“However, considering that these events are already in the rear view mirror, we expect the underlying economic growth momentum to reassert themselves, leading to a re-acceleration in growth,” Morgan Stanley said. “In our view, India is moving on to the next phase of the business cycle of productive growth.”