Indian economic revival in the offing, but not assured yet

NEW DELHI - The possibility of India’s Goods and Services Tax being passed in the Monsoon Session of Parliament together with the revival of the south-west monsoon hold out the promise of higher quality growth and lower inflation for India - but a recovery in the investment cycle is probably confidence-dependent and will need to be preceded by the GST and good monsoon rains before it starts to materialise, ANZ Bank says in a research note.

“The revival in south-west monsoons since late June has not just brought respite after a scorching summer, but also made farmers heave a sigh of relief before they resumed normal sowing and planting activity,” ANZ says.
“Furthermore, with the favourable effects of a La Niña weather phenomenon round the corner, agricultural growth in India is in for a revival after two straight years of drought. La Niña years have on average delivered 8.4% y/y agricultural growth.
“Consumer spending seems to be on a firm footing and will likely continue to drive GDP growth over FY17. Even as the real income windfall from lower oil and commodity prices dissipates, the rise in rural consumption on the back of a normal monsoon and the increase in Central Government salaries and pensions should keep consumption buoyed.”
ANZ warns, however, that a revival in the investment cycle is elusive.
“High leverage in the corporate sector and rising non-performing loans, especially in resource-based industries, have weighed on investment demand,” it says.
“The Gross Non Performing Assets (GNPA) ratio of banks registered an unprecedented 2.5% increase to 7.6% in March 2016 over the September 2015 level. While, this was because of a reclassification of restructured loans as non-performing on RBI’s behest, the associated increase in provisioning will continue to weigh on banks’ lending decision in favour of low-risk sectors.”  www.live.anz.com (ATI).