Subdued investment likely to keep Indian FY 2017 economic growth prospects in check

Subdued investment in India is expected to keep FY 2017 growth prospects in check. Private capital expenditure is showing no signs of rebounding. While, public capex remains weak in the country, anecdotal evidence shows that private capex would be more subdued that anticipated earlier, said Societe Generale in a research note.

Capital goods production shrank for the 18th consecutive month, whereas core sector data barely indicated any signs of improvement in spite of a low base effect. Subdued investment activity in the first quarter of FY2017, as manifested in the shrinking of Gross Fixed Capital Formation by 3.1 percent year-on-year, also led to India’s current account deficit for the period coming in at just USD 0.3 billion, the lowest since fourth quarter FY 07, noted Societe Generale.

Since the current account balance shows a savings investment gap, the picture indicates a subdued investment environment.

“Hence we have reduced our expectation of a current account deficit for FY17 from 1.4% to 1% of GDP and have reduced our FY17 GFCF growth expectation to 2.7% yoy from 3.1% yoy earlier”, added Societe Generale.

But with domestic consumption being stronger than expected, the GDP growth expectation is maintained at 7.3 percent year-on-year during FY 2017, said Societe Generale.