See Q2 GDP at 4.2-4.3%; consumption may surge in Q3: RBS

India's weak macro economic data has raised concerns on stagnated or no growth for the economy. With GDP growth rate at 4.4 percent and PMI for August at 48.3, economists see flat growth for the coming quarters.

Gaurav Kapur, senior economist at Royal Bank of Scotland (RBS) expects GDP growth to be around 4.2-4.3 percent in Q2. However, he sees a pick up in consumption on the back of good rains and better rural demand in Q2 and Q3, he told CNBC-TV18. Also read: I am positive on India: Rakesh Jhunjhunwala Below is the edited transcript of his interview to CNBC-TV18. Q: The GDP was not enough. The Purchasing Managers’ Index (PMI) numbers were a shocker. Some dipstick poll we did indicated that the PMI numbers will come like July around 50. But at 48.3, this is a serious indication of contraction. What is the guess on Q2 GDP? A: Q2 GDP would be on the same levels as we have seen in Q1. I think 4.2-4.3 at this point in time. One of the key takeaways from Q1 GDP was the consumption growth falling to 1.6 percent. It must be the lowest trading in any particular quarter for private consumption since the series started. That can act as a bounce as you get into the second half of the year especially with rural demand picking up. Overall, Q2 would look like the same with manufacturing continue to show minus 2 percent growth, agriculture picking up a bit, services growth remaining in the vicinity of 6 percent. So, at this point in time I am working with a number of about 4.2-4.3 percent in Q2. Q: Eventually, once the government does come with planned expenditure cuts in order to control the fiscal deficit, when do you think that impact will start showing on the GDP? Would you be more worried than going into Q3 and Q4? What would be the impact of agriculture possibly cushioning the demand or the fall there? A: The land spending cut was largely on the capital side and that is visible. The investment activity this quarter has a negative 1.2 percent growth. So, impact of that we will see maybe in this and next quarter itself, but on the other side better than expected monsoon, you would see that coming in from Q2 onwards and with Q3 being the festival season. That is where typically consumption does pickup. With rural demand on the back of fairly lower levels of inventory in the manufacturing sector, you can see some improvement in the manufacturing side, from the consumer product side in the second half of the year. Government is trying to curtail investment towards the second half of the previous fiscal. The impact of that will persist in the first half of this fiscal, but given the push the government has given to the stalled projects in the first quarter of this year almost 1.1 percent of GDP worth of projects were cleared recently by the finance minister. That should start to show impact again over the next two-three quarters. So, on one side the kind of deceleration, which continues in case of investments, would continue. On the other side consumption could pickup and 1.6 is significantly below the trend growth of about 3.5-4 percent in case of consumption. So, this seems to be an aberration to me, it could be statistical anomaly. So, we should see some cushioning from consumption in the second half. Investment activity with the kind of rupee stability and volatility we have seen, it adds to the overall dissolute investment climate in the country which is persisted for quite a while now.