Recovery in India's GDP growth may start in next fiscal, says SBI's Soumya Kanti Ghosh

The slowdown in the Indian economy is more entrenched now and GDP growth in the second quarter could possibly bottom out, said Soumya Kanti Ghosh, group chief economic advisor, State Bank of India.

"Whatever recovery starts happening post September will be more of a base effect. Q3 and Q4 would be a little better but the actual recovery on ground in terms of the numbers will start occurring from Q1 of the next year,” he said.

“We expect the fiscal deficit to be in excess of 3.5 percent but to us, the more important thing is the growth and it seems that the trade-off between the growth and the deficit, the growth is coming up to be much lower. There will be 20-30 basis points (bps) possible slippage in the fiscal deficit but the growth slippage is from 6.8 percent – which were initial estimates - to 6.1-5 percent. The growth slowdown and the downward revision is much more entrenched than the fiscal deficit slippage. So from that point of view, I think the more important point is how to put that growth into the economy,” he added.

In terms of monetary policy, Ghosh said, “Rate cuts will continue, it could be larger than 25 bps but our sense is that monetary policy alone is unlike to solve the problem because the household leverage has increased significantly.”

“To look into the sector specific solutions is more important. The most important thing is to address the woes of the non-banking financial companies (NBFCs) sector, because the more you delay it, the more prolonged will be the credit crunch,” he further mentioned.

Speaking about corporate tax rate cut, he said, “This is more of a sentiment booster, this will help corporates but in terms of actual investment this will take a little bit time to get translated.”