DBS sees more policy fine-tuning from Govt in weeks ahead

SINGAPORE, Oct 9:  The Development Bank of Singapore (DBS) expects policy fine-tuning from the Indian government — on the lines of the Goods and Services Tax (GST) — in coming weeks.
According to DBS, incoming high-frequency data are likely to improve. The index of industrial production for August — due this week — is poised to extend gains from July’s 1.2 per cent, said DBS in its daily economic report today.
As GST-driven distortions fade, expectations are set on festive-driven demand, good monsoon, remonetisation and higher disposable income following an increase in wage or allowances to provide support to the production outlook, it said. Production in 2017-18 is likely to be around 2%, slower than last year’s 4.6 per cent, added the Singapore banking group.
It saw more such pockets of improvement in high-frequency data prints, including core industries index, PMIs (Purchasing Managers Index) and auto sales. This should translate into a growth average of 6-7 per cent in the second half of 2017-18 after the trough in the June quarter, the bank stated.
While this still implies that full-year growth will be at a three-year low, the urgency to adopt pump-priming measures is lower, the lender felt. In the long run, the onus is on the government to support growth once the impact of GST uncertainty rolls off, it added.
More emphasis will be on recovery of non-performing assets and rebuilding bank balancesheets, according to DBS.
It sees less room for further rate cuts, with the budget seen to modestly miss its 2017-18 targets owing to revenue shortfall. A less rigid deficit target will also reduce the extent to which spending needs are to be compressed in the second half of this fiscal.
The lending agency also noted that the government has just relaxed a handful of GST restrictions by lowering rates on 27 items and 12 services. (PTI)