Revival of investment demand will not gather steam anytime soon and will be a long drawn process, hindering acceleration in GDP growth, India Ratings and Research (Ind-Ra) said today.
"The pace of a sustained economic recovery is likely to be slow, despite the push coming from consumption demand in the form of higher rural expenditure due to a favourable monsoon and higher urban expenditure due to the 7th Pay Commission pay out in 2016-17," the rating agency said in a statement.
The gross domestic product (GDP) grew at 7.1 per cent in the first quarter of 2016-17.
The rating agency said it has pointed out earlier that government expenditure alone can play only a limited role in reviving the capex cycle, as an overwhelming proportion of the total capex (FY16: 83.96 per cent of investment) in the economy comes from the private sector (including central and state public sector undertakings and households).
"Private corporate sector investment continues to be constrained by factors such as leveraged balance sheets of infrastructure players, a high level of non-performing assets in the banking sector and low capacity utilisation rates in the manufacturing sector," Ind-Ra said.
The rating agency said at the sectoral level, manufacturing growth at 9.1 per cent surprised on the upside, particularly in the backdrop of weak factory output data for manufacturing in April-June 2016.
The robust manufacturing growth in first quarter of the current fiscal clearly shows that the Index of Industrial Production (IIP) in its present form and shape is not capturing the manufacturing activity correctly and requires an upgrade immediately, lest it becomes a redundant indicator.
The agricultural sector grew at 1.8 per cent in current fiscal, which is lower than the growth rate of 2.6 per cent in the same quarter of FY16.
Noting that after two years of sub-par monsoon, the first half (June-July) of the monsoon season this year has witnessed a normal rainfall, Ind-Ra said it expects agricultural GVA to pick up pace in second half of the currency fiscal, which will give a fillip to the overall economic growth.
"GDP growth was lower than the GVA growth after five quarters. This was due to the slower growth of net taxes on products," it said.
Ind-Ra said it expects a softening in pulses prices to continue; however, the prices are likely to remain volatile due to structural issues related to agricultural supply chain.
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