A turnaround in the making?
Growth slowed at the end of Fiscal Year 2016-17 as the economy felt the bite of demonetization. Domestic demand growth slowed due to a contraction of investment and slower private consumption, strong government expenditures provided some offset. Exports gained some traction.
Looking forward, there are signs that the negative effects of demonetization are abating, and that the economy would turn around in the upcoming quarters. Exports are improving in line with higher global demand; the re-monetization of the economy is set to translate to a gradual improvement in private consumption. In the longer term, improving financing conditions will be critical to boost investment and thus create a sustainable growth environment. A strong rise in deposits after the demonetization shock gives banks more leeway to cut lending rates. Progress on reforms (GST, Bankruptcy law) should be conducive to attracting foreign investment. In that context, GDP growth is set to expand by +7.2% in FY2017-18 (after +7.1% in FY2016-17).