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Expert views: India's Q2 GDP growth dips to over 6-year low of 4.5%

Updated : November 29, 2019 08:00 PM IST

India's economic growth slipped further to hit an over six-year low of 4.5 percent in July-September, according to official data released on Friday. The previous low was recorded at 4.3 percent in the January-March period of 2012-13.

The Gross Domestic Product (GDP) growth was registered at 7 percent in the corresponding quarter of 2018-19. During the six-month period (April-September 2019), the Indian economy grew 4.8 percent as against 7.5 percent in the same period a year ago.

The Reserve Bank of India (RBI) had lowered the GDP growth projection for 2019-20 to 6.1 percent from an earlier forecast of 6.9 per cent. China's economic growth was 6 per cent in July-September 2019, which was the weakest expansion in over 27 years.

To decode the second-quarter GDP numbers, CNBC-TV18 spoke to Anubhuti Sahay, head of South Asia Eco Research at Standard Chartered Bank; Shubhada Rao, chief economist at Yes Bank; Indranil Pan, chief economist at IDFC First Bank; Sameer Narang, chief economist at Bank of Baroda; Ajay Srivastava, CEO of Dimensions Corporate Finance Services; Nilesh Shah managing director of Kotak Mahindra AMC and SC Garg, former finance secretary.

Narang said the heavy lifting of GDP was done by the spending of public administration, defence and state governments and advised states and the central government to continue their spending, "Otherwise, given the overall credit crunch in the economy, growth may slip down lower. So, that is the underlying message that we get from this data."

Sahay said the headline GDP was pretty close to the expectations and he was surprised at the private consumption expenditure, which was expected at around 2.7 percent, but it stood at 5 percent.

He said, "Looking at private consumption number at 5 percent gives us some kind of comfort that consumption did not collapse the way it was anticipated by most of us. Given that the headline numbers are pretty much close to our expectation, I am not surprised that the fixed capital formation has taken a hit coming at just 0.1 percent."

Srivastava said, "I think the market is signalling very clearly that there is absolute lack of risk appetite and therefore there is no willingness to lend money to any risky sector at all at this point of time. It is all about personal loans, loans to suppliers of MNCs and guaranteed money etc."

"The treasury bill rate, the repo rate is lower as banks have nowhere to lend the money but to take the money and park it in the T-Bills. It is a fact that no one wants to lend money and that is where the conundrum lies that how does the government revive itself when it is not able to get money to the productive sectors?" he added.

Pan said, as usual, the public sector expenditures have done the heavy lifting of GDP figures, "The critical issue here is of the manufacturing which is on a contraction. We were expecting a slight positive on the manufacturing., Thankfully, the finance and real estate, we were expecting 5 percent and that has come out at 5.8 percent."

"If I look at the whole data set that has come out, obviously the critical issue also will be the private consumption expenditure because that is where the challenge for the Indian economy is. Private consumption expenditure is better than the 3.1 percent that we had seen," he added.

Shah said, "The number is in-line with market expectation. Our focus should be on how do we take this up to the potential growth rate of India and clearly there is a heavy lifting required from the government, from the fiscal policy and from the monetary policy. I think our effort should be on figuring out what steps we need to take in the short term, in the medium term so that this growth rate of 4.5 percent becomes the bottom and we could move higher from next quarter onwards."

Agreeing that there is a deeper slowdown taking place in the economy with 5 percent, Garg said the first half at 4.6 percent is really quite worrying, "Third-quarter seems to be shaping up as indicated by the core industries data with coal production, electricity going down at such a sharp pace, it seems that things are still not out of the woods. There is somewhat of a positive trend visible in the rural economy to my mind.

"The food inflation is higher and that puts some additional funds in the hands of rural people which might start some consumption growth in the third quarter. However, most worrying to my mind is fixed capital formation at 0.9 percent, which indicates a real stalling of capital investment across many sectors which we otherwise know in the real estate, road sector, telecommunications and in power."
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