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Public capex building key source of support for Indian economy: DBS

Public capex building key source of support for Indian economy: DBS
New Delhi: Higher public spending has been an important source of support for the economy, and it is likely to remain so this fiscal as well, as the country heads to an election heavy calender next year, says a DBS report.
India's GDP grew at the fastest pace in seven quarters at 7.7 per cent in January-March, retaining the fastest growing major economy tag on robust performance by manufacturing and service sectors as well as good farm output.
According to DBS, the March quarter growth was entirely driven by domestic forces. As per the global financial services major, "investments were majorly driven by higher public capex and central public-sector expenditure while private sector interests were likely confined to brownfield projects, as new investment projects continued to disappoint".
The report further noted core GVA (excluding farm and public administration) which reflects the underlying growth momentum, softened to 7.2 per cent in the March quarter from 7.4 per cent registered in the December quarter of 2017.
"This reinforces that higher public capex building has been an important source of support for the economy in second half of 2017-18 and is likely to remain so into 2018-19 as we head into a heavy calendar for state elections in October-December 2018 and general elections in mid-2019," the report said. Moreover, the rural focus in 2018-19 budget also suggests that more reform bullets (including minimum support prices) will be unveiled in the election year.
Going ahead, "public capex support is expected to persist, with an emphasis on rural infra," the report said adding there is expected to be an improvement in urban consumption, with states all set to adopt wage revisions.
Meanwhile, global brokerage HSBC in a recent report had also said "hand of government" was the main driver behind the rise in January-March GDP growth to 7.7 per cent - the fastest pace in seven quarters - as exports and private consumption disappointed.
"The GDP print reinforces our view that much of the current uptick in growth is led by the government's push to construction and consumption," the HSBC report had said.
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