CRISIL has trimmed its fiscal 2018 growth forecast for India by 40 basis points to 7% from 7.4% earlier after data for the first quarter showed GDP growth at 5.7%, the slowest in the past three years.
 

The demonetisation-driven cash crunch hurt economic growth, especially small enterprises, while the imminent rollout of the Goods and Services Tax (GST) spurred destocking and a slowing of production brought down manufacturing growth.
 

The 7% growth forecast implies a GDP growth of 7.4% on average in the remaining three-quarters.
 

We believe the sharp decline in growth in the first quarter is transitory and the economy will grind up slowly over the next few quarters as the impact of demonetisation and destocking fades. The Purchasing Manager’s Index (PMI) for August already signals a pick-up in manufacturing activity.

The growth will continue to be consumption-led, given

• Normal monsoon
  
• Softer interest rates and inflation
  
• Pay commission implementation by the states which will push up purchasing power
  
• Pent-up demand (demand postponed due to the demonetisation)