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You are here : IndiaNotes >> Research & Analysis >> Economy Watch >> Growth Prospects

India 2018 economic outlook

Motilal Oswal | 01 Jan, 2018  | Follow Author | Add to my Favourites 
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Moving from a remarkable year to a calm year

2017 was a remarkable year in many ways. Retail inflation was the lowest in almost four decades, the Indian Rupee (INR) strengthened against the US Dollar (USD) for the first time in seven years, and the path-breaking Goods & services tax (GST) finally became a reality. However, as the year ends, concerns about fiscal deficit target, economic recovery and inflation uptick have started to emerge.

Against this backdrop, we pen down our forecasts for the next two years. We believe that while real GDP growth will remain sub-7% for the second consecutive year, the Reserve Bank of India (RBI) will likely choose to look through low base-driven high inflation and the INR may weaken only mildly against the USD. Fiscal profligacy, crude oil prices and an uncertain global economic recovery, however, are the key risks to our forecasts.

A look through rear-view mirror: This is that time of the year when we take a stock of the year gone by and list down the key trends that we expect to dominate the forthcoming year. Five key trends that made 2017 a remarkable year were:

First, the transition of the economy from a multi-layered, multi-dimensional value added tax (VAT) system, to a five-layered, relatively simplified GST system was undoubtedly the most important development during the year. Leaving aside the initial teething issues associated with any major structural reform, the benefits of GST over the medium term are indisputable. As the transition is complete, the system adjusts to the change and the initial structure is further simplified (after learning from the first-hand experience), the potential efficiency gains could change the way – for the better – the Indian economy functions.

Second, 2017 was an interesting year because retail inflation – measured by the consumer price index (CPI) – eased to as low as 1.5% YoY in June 2017, marking the lowest inflation in the 21st century. Based on actual data available up to November 2017, we expect all-India CPI inflation to average 3.8% in FY18, marking the slowest annual inflation since the data became available in 2011. From a longer-term perspective, CPI for industrial workers (CPI-IW) is estimated to grow 3.2% in FY18, marking the lowest inflation in about past four decades
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About Motilal Oswal

Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.

 

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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.




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