India Q4 GDP 4.8% as expected; outlook on growth divided

Moneycontrol Bureau

India's gross domestic product (GDP) grew 4.8 percent in the quarter ended March, in-line with what the market was expecting, but economists, bankers and industrialists were divided in their outlook on growth prospects this fiscal.

GDP growth for FY13 stood at a decade low of 5 percent, and some of the indicators like capital formation showed a slight improvement in the last two quarters, raising hopes that the worst may be over.

Nomura economist Sonal Verma said the latest GDP data suggested that the economy may have bottomed.

L&T chairman A M Naik said there were some signs of capacity expansion in the infrastructure sector, but at the broader level, there was huge capacity under utilization in many segments of the manufacturing sector. He too was not optimistic of the capex cycle picking up meaningfully this fiscal.

Economist Haseeb Drabu said growth was unlikely to pick up this year, more so with the revised loan restructuring rules by the Reserve Bank of India. Already corporates were hugely over leveraged, and banks would be henceforth be cautious of extending further loans as they will have to make higher provisions in case the loans have to be. He also said that one should not read much into the healthy bottomline growth in Q4 corporate earnings. That is because the topline is still decline, and the improvement in bottomline has been driven by cyclical factors and not structural factors.

Earlier this month, rating agency S&P retained its negative outlook on India’s sovereign rating and said there was a one in three chance of a downgrade. A few days later, rating agency Moody's too voiced skepticism on India’s growth prospects.

"India's growth rate has been steadily slowing for the past two years and it is not yet clear whether the bottom has been reached," Glenn Levine, senior economist at Moody's Analytics, said in his report.