December 29, 2017 I Economics
2017 was an interesting year for the economy as it went through
Indian economy in 2017
Contact:
Economics Department
91-022-6754 3489
Mradul Mishra (Media Contact)
mradul.mishra@careratings.com
91-022-6754 3515
Disclaimer: This report is prepared by the Economics Division of
CARE Ratings Ltd. CARE Ratings has taken utmost care to ensure
accuracy and objectivity while developing this report based on
information available in public domain. However, neither the
accuracy nor completeness of information contained in this
report is guaranteed. CARE Ratings is not responsible for any
errors or omissions in analysis/inferences/views or for results
obtained from the use of information contained in this report
and especially states that CARE Ratings has no financial liability
whatsoever to the user of this report
some very challenging phases. While GST was the highlight from the
policy perspective, the fall out of the same on other economic
variables are open for discussion. Against this background, the
overall state of the economy is presented here based on the latest
information that is available.
1. GDP growth
For the first half of the year, growth has come in lower at 6%
compared with 7.7% in H1-FY17. There was only one sector, trade,
transport, hotels etc, which registered higher growth in H1-FY18 at
10.5% compared with 8.3% last year. Further only three other
sectors witnessed growth of above 5% during this period: public
administration etc., electricity and finance, real estate etc. Our
projection for the year is 6.7-6.8% based on the assumption of
significant acceleration in Q3 and Q4.
2. Gross fixed capital formation
The investment rate measured as the ratio of gross fixed capital
formation to GDP at current prices was further down to 26.9% from
28.1% indicating that corporates have not been investing in capital
creation. Private investment has yet to pick up which will be critical
for accelerating the overall investment rate. We do not expect any
change in this number which will remain at 27% for the year.
3. Industrial growth
The overall performance was disappointing as a largely favourable
monsoon should ideally have led to greater demand and hence
production. Also the restocking following GST should have added to
production numbers. But, growth in first 7 months was 2.5% (5.5%).
Within industry, mining was the only sector to witness higher
growth. Manufacturing and electricity sector output was lower.
The use based classification reveals that barring non-durable
consumer goods, all other sectors witnessed lower growth rates.
Our forecast for industrial growth for the year is 4-4.5%.
4. Agriculture
A near normal monsoon should have ideally led to higher growth in
agricultural production. The first advance estimate for the kharif
crop reveals lower production for rice, coarse cereals, oilseeds,
pulses and cotton. Sugarcane is the only crop where production is
Economics I The Indian Economy in 2017

expected to be higher. Farmers have been challenged by declining prices (at times below the MSP)

However, the area under cultivation of the rabi crop is marginally better till December 22,2017 at 546 lkh hectares (545 lkh ha
in Dec’16). We expect overall growth for agriculture, forestry etc. to be around 3% for FY18.

5. Government finances
As per the latest data released by the government for the period April-November’17, the fiscal deficit is 112% of the target,
while the revenue deficit is 152.2% of the budgeted amount. It is expected that the revenue collection could be lower
especially for indirect taxes which may not be compensated by higher non-tax revenue in the form of dividend received from
PSUs and RBI and higher disinvestment receipts. This has prompted the government to announce an additional borrowing
programme of Rs 50,000 cr for the year. Assuming this amount of Rs 50,000 cr is not exceeded nor are additional Tbills issued
or retained in March, the fiscal deficit number would go up to 3.5% of GDP for FY18 under ceteris paribus conditions.

6. Banking sector
The period up to December 8, 2017 reveals that bank deposits at Rs 109.02 lkh cr have grown at a very low rate of 1.3%
between April and Dec 8 compared with the growth of13.1% last year. However, it should be remembered that growth was
high last year following the sharp increase in deposits following demonetisation. We expect growth to be in the region of 8-
10% by March, 2018.

Bank credit at Rs 80.27 lkh crore had grown at a higher rate of 2.4% this fiscal (0.9% in Apr-Dec’16), leading to a strain on
liquidity. Credit growth to manufacturing and services for April-October are negative while that to agriculture and personal
loans segment is 7.7%. For the year, we expect growth in credit to match that of deposits, with thrust being on retail sector.

7. Monetary policy and rates

In the 12 months period ending December 2017, the RBI had lowered rates by 25 bps. The base rate of banks has come down
from a range of 9.3-9.65% to 8.85-9.45%, while the MCLR is down from 8.65-9% to 7.65-8.05%. The deposit rate for 1-year
deposit has come down from 6.5-7.1% to 6-6.75%. We do not expect any rate action till March 2018.

The 10-years GSec yields had increased during this period from 6.59% to 7.29%. It will remain range-bound around 7.2% till
March, 2018 taking guidance from inflation and the Budget.

8. Corporate debt market

Public issues of debt for the first 8 months of the year were lower at Rs 3,896 cr as against Rs 23,892 cr in 2016. Private
placement of debt was virtually unchanged at Rs 4.18 lkh cr (Rs 4.19 lkh cr Apr-Nov’16) during April-November 2017. Total
debt issuances are expected to range between Rs 6.5-7 lkh cr for the year.

9. CPI inflation
CPI inflation increased to 15 month highs in November, 2017 and reached 4.9%. While food inflation was 4.4%, other
segments like clothing and footwear (5%), housing (7.4%) and fuel and power (7.9%) witnessed elevated levels of inflation all
through the year. CPI inflation will remain around 4.5% for the next 4 months.

2
Economics I The Indian Economy in 2017

10. External sector

While growth in exports was impressive at 12% for the period April-November 2017, imports too surged by 21.9% leading to
a higher trade deficit of $ 100 bn ($ 68 bn last year). We expect exports growth to be around 15% for the year and imports
at 22-25% with rising oil prices.

The current account deficit for the first half of the year was higher at 1.8% compared with 0.4% in H1-FY17. However, this has
been compensated by the capital account, especially FPI and FDI, which has led to an increase in forex reserves by $ 31.4 bn
to $ 401.4 bn. Our expectation is that the CAD will be 1.5% for the full year.

11. Foreign investment

Both FPI and FDI have been higher in the current year. FPI flows were around $ 32 bn between April-December (latest)
compared with $ 4.5 bn last year, of which debt dominated at around $ 24.3 bn. FDI flows for the first 6 months of the year
were $ 25.3 bn as against $ 21.6 bn.

Based on these trends we expect FPI to move towards $ 35-37 mark and FDI to $ 50-55 range for the full year.

12. Exchange rate

The rupee has strengthened significantly in 2017 and on a point to point basis has moved from Rs 68.12/$ to Rs 63.93/$ on
Dec 29th. We expect the rupee to remain in range of 64-64.20 by March.

The Sensex has been the most impressive indicator moving from 26,626 in Dec 2016 to 34,056 on 29th December – 28%
increase.

CARE RATINGS LIMITED

(Formerly known as CREDIT ANALYSIS & RESEARCH LIMITED)
Corporate Office: 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion
(East), Mumbai - 400 022.
Follow us on /company/CARE Ratings
Tel: +91-22-6754 3456 I Fax: +91-22-6754 3457 /company/CARE Ratings
E-mail: care@careratings.com I CIN: L67190MH1993PLC071691
Website: www.careratings.com