GDP growth likely to fall below 5% in Q2

NEWDELHI: With industrial output in the September quarter contracting 0.4% from a 3% expansion in the preceding three months, economic growth is likely to slow to less than 5% in the quarter ended September, data for which is to be released on November 29.

The weaker-than-expected economic data emerging from India points to a deepening slowdown in Asia’s third-largest economy, where private consumption, investments and exports have all taken a hit. Economic growth rate had cooled to a sixyear-low of 5% in the June quarter.

“GVA (gross value added) and IIP measure two different data points and industrial GVA growth has generally been in excess of IIP growth. However, in Q2 of FY20, industrial GVA growth is likely to be lower than 2.7% achieved in Q1 of FY20,” said Devendra Kumar Pant, chief economist at India Ratings.

Nomura has projected September quarter GDP growth to decelerate to 4.2% from 5% in the June quarter of FY20. The brokerage last week cut its overall GDP growth forecast for FY20 to 4.9% from 5.7% estimated earlier, the lowest so far among forecasting agencies.

SBI in its Ecowrap report released last week said it is less hopeful of a growth pick-up in Q2 FY20. “Out of 26 indicators, only 5 indicators were showing acceleration in September. This indicates the demand slowdown in the economy is still significant and would take longer time to recover. If we map the leading indicatorsshowingacceleration, there is a distinct possibility that growth in GDP in Q2 will be lower than 5%,” the report said.

The Narendra Modi administration has taken a series of steps to reverse the slowdown, including a cut in the corporate tax rate in September. The Cabinet cleared a proposal last week to set up a ₹25,000 crore debt fund to finish incomplete housing projects, a move that is expected to boost cement and steel sectors in the coming months.

Sachchidanand Shukla, chief economist at Mahindra Group, said the government has tried to address sectoral pain points through specific measures. Most of these measures are addressing supply-side concerns and not those on the demand side, barring RBI’S rate cuts, he added. “We will see from Q3 onwards a slight recovery and may end Q4 probably with a growth rate of close to 7%. The factors that will support this recovery are a favourable base, some favourable lagged effect of RBI’S policy rate cuts meant to infuse liquidity and government spending,” he added.

ECONOMIC GROWTH DATA FOR THE SEP QUARTER WILL BE RELEASED ON NOV 29