India’s third-quarter gross domestic product (GDP) numbers came in a tad lower than expected at 4.7 percent. That’s slower than the 4.8 percent clocked in the second-quarter.
Besides lower numbers, some details were eerie.
Capital formation contracted by 1 percent in Q3 and private consumption grew by just 2.5 percent giving an indication that not only has the growth not stopped falling, there is also very little evidence to believe that growth will rise in Q4 or hereafter.
So, is India’s slowdown not over yet? Are there any signs of the country even going past 5 percent in current quarter? Chetan Ahya, Managing Director at Morgan Stanley Asia Pacific gives his analysis of the numbers and his outlook for the economy.
Below is the interview of Chetan Ahya with CNBC-TV18’s Latha Venkatesh
Q: What is your take on this trajectory itself? 4.8 percent in Q2, 4.7 percent in the Q3. Are we likely to remain sub 5 percent in Q4 as well?
A: We expect GDP to remain around 5 percent over the next two quarters particularly in Q4 there will be some help from the agricultural output.
We were surprised by the weakness in the agricultural data point which came out yesterday. However, if you look at the area under coverage which the farmers have taken up for the Rabi crop which is the winter crop it is up by about 5.5 percent. So, it is very likely that the crop which is going to be harvested in March quarter and June quarter will be quite robust. That is why we are expecting 5 percent GDP growth.
The non-agri GDP which is more important from the markets perspective is still likely to be very weak. As you mentioned the key problem there is essentially the fact that we are struggling to get even the capex to GDP stabilised and it is contracting right now.
Q: What is the take on the next year itself? Therefore what will your average be for this year, is it going to be sub 4.7 percent?
A: No, we are at 4.7 percent.
Q: How does FY15 look to you at this point in time since you said Q1 of next year is also going to be sub 5 percent?
A: We are saying it is around 5 percent and so the full year average we have it at 5.2 percent for March 2015 finance year.
Q: Can you add some more colour on this capital formation contracting by 1 percent as well as private consumption growing by just 2.5 percent? If both the investment and the consumption wing are looking so weak when do you see them turning around at all?
A: The first thing which will probably turnaround will be consumption which is that you get the inflation numbers going down, that gives greater purchasing power to the consumers. So, we expect some improvement in consumption in Q3 and Q4 of the next financial year.
Similarly we expect the capex to GDP to stabilise and not contract like the way it has been in this recent quarter. So, those together will help stabilise the domestic demand but more importantly we are all banking on recovery in the US and Europe to show up in our export numbers.
In fact we must confess that the last two three months numbers that we have seen in exports has actually been weaker than what we had expected. So, we are hoping that, that was because of some problems in the US economy for a month or two and it should show up back in recovery in the coming months. So, exports is the third factor which will help ensure that GDP growth touches around 5 percent and crosses in the second half of 12 months ending March 2015.
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