"Based on our current assessment of the likely impact of demonetisation, we expect full year GDP and GVA (gross value added) to be 40 bps lower than our earlier forecasts of 7.9 per cent and 7.7 per cent, respectively, which presumes economic activity would resume normalcy in the fourth quarter of 2016-17," Icra Senior Economist Aditi Nayar said in a report.
The agency also pegged second quarter GDP to grow at a lower pace of 7.2 per cent due to poor showing by the industry and services sectors, which will negate the expected boost to agriculture and allied activities from the normal monsoon.
Accordingly, pace of expansion of GVA at basic prices is expected to ease mildly to 7.2 per cent in the second quarter from 7.3 per cent each in the same period of 2015-16 and first quarter of 2016-17, she said.
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The rating firm expects industrial growth to ease to 5.5 per cent in July-September, from 6.3 per cent a year ago, led by manufacturing, mining and electricity sub-sectors.
"Second quarter corporate earnings suggest that net income growth continues to outpace revenue. Nevertheless, given the lagged effect of a rise in commodity prices amid modest demand and an unfavourable base effect, real manufacturing GVA growth is likely to decline to 7 per cent in the second quarter from 9.2 per cent."
A similar downward spiral is expected in services as well, which is likely to ease to 8.7 per cent in July-September, from the earlier 9 per cent, due to moderation in Railways' freight revenue, petrol and diesel intake and contraction in services exports, Icra added.
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