Economy

Q2 GDP: How bad the data is; what RBI and government likely to do next

Updated : November 30, 2019 02:19 PM IST

India's annual economic growth slowed to 4.5 percent in the second quarter of FY 2019-20, its weakest pace since 2013, making an interest rate cut more likely when the central bank meets next week. The gross domestic product data released on Friday showed consumer demand, private investment and exports all struggling, resulting in a year-on-year growth figure that was below the 4.7 percent forecast in a Reuters poll of economists.

Here is what economists and experts are saying about Q2FY20 GDP numbers:

Sreejith Balasubramanian, economist, IDFC AMC

"Bottoming-out of growth could be further down the road, with the index of eight core industries falling 5.8 percent y/y in October, and recovery is unlikely to be V-shaped, although some base effect is likely in H2."

"Corporate tax cut is only medium-term positive, assuming more structural factor reforms, with the likely immediate fiscal impact now much lower than initially envisaged."

Also Read: RBI likely to cut repo rates by 25 bps, but still no respite for economy

"The Reserve Bank of India (RBI) would most likely further reduce its FY20 GDP forecast, and with falling core-CPI, could focus more on growth. Rates have to stay 'lower for longer' and liquidity adequate, unless any significant risks materialise. The RBI has to clearly communicate this to avoid apprehension on the path of rates."

Madhavi Arora, economist - forex and rates, Edelweiss Securities

"Fiscal constraints will imply cautious government spending from here on. We now see FY20 GDP growth lingering around 5.1-5.2 percent, significantly lower than the RBI's forecast of 6.1 percent."

"For the RBI, it presents a tough policy dilemma of overshooting inflation, undershooting growth and fragile fiscal state. Nonetheless, the weak second quarter GDP print will validate our call for further easing by RBI by at least another 50 basis points (bps) in this cycle, despite uptick in inflation beyond the 4% comfort zone in the coming months."

Kunal Kundu, India economist, Societe Generale

"While it appears likely that the growth rate has bottomed out especially as the favourable base effect kicks in, extremely weak demand conditions engender a lurking fear of continued weakness in economic activity."

"At this point in time, direct fiscal intervention and/or cut in personal income tax rates to put in more money in the hand of consumers appears to be the only short-term solution. But given the rather constricted fiscal space of the government, such policy actions are unlikely to materialise."

"We, therefore, believe that RBI will opt for the sixth consecutive rate cut (of 25bp) in the upcoming monetary policy meeting in December as monetary policy will be expected to do all the heavy lifting for the economy in the absence of fiscal stimulus."

Amar Ambani, senior president and research head, Yes Securities

"The stock market has been trending lower in the last couple of trading sessions, in anticipation of poor numbers. While there may be a mild negative reaction on Monday, it will not change the medium-term trajectory for equities."

"For the fiscal year FY20, our real GDP forecast stands at to 5.2 percent, with risks to further downside. After 135-bp cut delivered by the RBI since February 2019, we expect the RBI to cut rates by an additional 25 bps in December, taking the repo rate to 4.90 percent."

"Going forward, we believe the fiscal policy will need to play a dominant role in supporting overall growth. The government may choose to mildly deviate from its fiscal deficit target for this year as well as next fiscal."

Rupa Rege Nitsure, group chief economist, L&T Financial Services

"A slowdown in GDP to 4.5 percent and GVA to 4.3 percent was primarily on the back of sustained weakness in activities in core sector as well as the manufacturing sector."

"Low investment confidence is clearly reflected in a contraction in fixed investment spending during the second quarter. This was already signalled by a near collapse of financial credit from banks and non-banking financial companies (NBFCs)."

"Luckily, rural belts have started showing early signs of mild recovery, thanks to improved cashflow prospects for farmers in a few states. Going by the underlying trend and momentum, I don't expect GDP growth to cross 5 percent for the full FY20."

Sujan Hajra, executive director, chief economist, co-head - Research, Anand Rathi Securities

"We were expecting numbers to range from 4.8 to 5.2 percent. It has come significantly below that. Overall, a bad set of numbers. Going by the indicators like Diwali and car sales, our sense is that it will pretty much bottom out at this level."

"There should be a significant recovery in the second half. The corporate tax cut will lead to better performance but how much is definitely is a question. We expect a continuation of a rate cut and with this GDP numbers there could more likely be a 25-bp cut."

"The government is already taking various measures. But, it should step up spending and infuse more confidence and be more categorical on the NBFC front."

Garima Kapoor, economist and vice-president, Elara Capital

"We believe while the growth may have bottomed out in Q2FY20, we are still sometime away from a strong broad-based recovery. We expect FY20 H2 growth to recover to 5.6% clocking a growth of 5.2-5.3 percent in FY20."

"While Q2FY20 CPI inflation was broadly within the RBI's estimates, the 4.62 percent reading for October was well above the estimates led mainly by food prices especially due to inclement weather. We expect RBI to ease policy repo rate by 25 bps in its December policy and retain its accommodative guidance..."

"The risk aversion in the economy is affecting recovery in demand. As such, we believe that there is a need to improve the credit conditions in the economy. It is also pertinent that the government continues to spend in order to avoid conditions of tight liquidity that were prevalent in the early part of the year."

Arun Kumar, head of research, Fundsindia.com

"The tepid domestic growth has been led by weak investment activity, moderate consumption growth and slow global growth environment. While further policy support can be expected from both the government and the RBI, we expect the recovery to be more gradual than a V-shaped sharp recovery."

Anagha Deodhar, economist, ICICI Securities

"The GDP data confirmed fears of weak growth momentum. Measures taken by the government should boost growth in H2, however we will closely monitor high-frequency data. Core sector data for October showed steep contraction. Hence, the weak momentum is likely to have continued in first month of the third quarter as well."

"A rate cut is definitely on the cards. Although we are sceptical about monetary policy's effectiveness in boosting growth in the current scenario, growth concerns are likely to make a strong case for a rate cut."

"Monetary policy clearly has limitations when it comes to boosting growth in the present situation. Hence, fiscal policy will have to do the heavy-lifting to boost growth. Sector-specific measures and increased government spending could be the quickest way to boost growth in the near term."

Joseph Thomas, head of research, Emkay Wealth Management

"Second-quarter GDP at 4.50 percent indicates a slump in economic activity and it has become quite pronounced after a slip to 5 percent in the first quarter. This leads up to an annual growth rate close to 5 percent."

"Stronger fiscal stimulus is required to stem this fall without which it could be still lower as we move into the next financial year. Measures to stimulate demand needs to be taken immediately, in the absence of which countercyclical actions may not bear fruit."

Q2 GDP: How bad the data is; what RBI and government likely to do next

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