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GDP growth hits 6-year low in Q1: No respite in sight this fiscal, say economists

GDP growth hits 6-year low in Q1: No respite in sight this fiscal, say economists

GDP growth hits 6-year low in Q1: No respite in sight this fiscal, say economists
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By Pranati Deva  Sept 2, 2019 12:02:02 PM IST (Published)

India's economic growth in the first quarter of the current fiscal slipped to an over six-year low of 5 percent. The previous low was recorded at 4.9 percent in April-June 2012-13.

India's economic growth in the first quarter of the current fiscal slipped to an over six-year low of 5 percent. The previous low was recorded at 4.9 percent in April-June 2012-13.

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Going forward, economists expect India’s GDP growth to remain tepid this fiscal.
In the recently released annual report, RBI’s Coincident Economic Indicator for India (CEII) showed that economic activity was at a 4-year low in Q1FY20. Also, the GDP deflator at about 3 percent resonates well with average Consumer Price and Wholesale Price inflation prevalent in the quarter.
The RBI also emphasized that reviving GDP growth and closing output gap will be its utmost priority, which may lead to another rate cut in the upcoming October policy.
According to Edelweiss, growth will bottom out from here on at least in terms of the headline number as base turns favourable and recovery sets in.
"With this growth number, it is almost certain that RBI will cut rates in the upcoming October policy. This coupled with increased credit from public sector banks is likely to spur credit-led recovery going ahead. The liquidity stress of NBFCs is also easing out. Both Corporate and NBFC spreads fell in August showing that signs of the second leg of recovery is setting in. This should aid corporate profitability, the effects of which will percolate down to the real economy," it added.
Edelweiss believes that reduced borrowing costs, a normal monsoon, and stability on the current account will be key drivers of growth going forward.
YES Bank Securities also expects Q2FY20 to remain subdued as weakness in most leading indicators such as auto sales, PMI, railway freight traffic, core sector has continued well into the second quarter.
Given the sharper than expected slowdown in GDP in Q1 FY20, YES Bank Securities has lowered its FY20 GDP forecast by 40 basis points to 6.3 percent. One basis point is one-hundredth of a percentage point.
Meanwhile, global brokerage Nomura has cut India's growth projections for the year 2020 to 6.9 percent from the earlier projected 7.1 percent, citing "tighter financial conditions."
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