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The Economy Observer: Expect real GDP growth at 6.5-6.7 % in 3QFY18

  • India's monthly economic activity index (EAI) grew 8.4% YoY in December 2017, marking strong growth for the second consecutive month. Favorable base and fiscal spending supported EAI growth in December.
  • While  the  EAI  growth  was  broad-based, a  78-month  high  growth  of  ~15% YoY in investments - primarily driven  by  favorable base effect in construction,commercial auto sales  and 21-month  high  growth in industrial credit - is encouraging. Wider trade deficit, however, acted as a drag on EAI growth.
  • Further, the consumption index also grew decently at 7.7% YoY in December 2017, partly supported by continued fiscal spending – up 21% YoY in December 2017.
  • Overall, better-than-expected growth in December- due to favorable base and continued high growth in fiscal spending - makes us believe that real GDP growth could improve from 6.3% in 2QFY18 to 6.5-6.7% in 3QFY18.