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Last Updated : Nov 29, 2019 07:40 PM IST | Source: Moneycontrol.com

Q2 GDP in line, but govt has to work on credit flow improvement, more fiscal measures: Experts

Nikhil Gupta of MOFSL looks more pessimistic among analysts, as he expects Q3FY20 growth to weaken further to around 4 percent which will mark the trough.

Sunil Shankar Matkar

India's economic growth falls to 4.5 percent in the July-September period, the weakest since the fourth quarter of FY13. This follows slowed growth across segments, barring public administration and defence.

It clearly showed the deepening slowdown in the economy, little or no spending from households and no capacity addition by companies.

The growth numbers were in line with analyst estimates but were much lower than the gross domestic product (GDP) of 7 percent inthe July-September quarter last year and 5 percent in the June quarter.


"The GDP growth rate for Q2FY20 was in line with the market expectation at 4.5 percent. All the indicators ranging from IIP, electricity consumption to core inflation rate were pointing towards the fact that the economy has not entered the revival path. The slowdown in consumption is indeed worrying, as its revival is important for investment to pick up," Deepthi Mary Mathew, Economist at Geojit Financial Services told Moneycontrol.

Gross Value Added (GVA), which is GDP minus taxes and is seen as a more realistic gauge to measure economic activity, grew 4.3 percent in July-September 2019, compared to 4.9 percent in the previous quarter and 6.9 percent in the second quarter of the previous year.

"The demand slump in the automotive sector, weakness in construction sector and lower growth in electricity sector partly brought about by excess rainfall in September have clearly impacted the economic momentum in Q2," Suman Chowdhury, President – Ratings at Acuité Ratings and Research said.

Among the key segments, farm sector grew 2.1 percent as against 4.9 percent YoY due to higher-than-expected monsoon, while manufacturing saw a contraction (of 1 percent) during the quarter as against a 6.9 percent growth in the same period last year. Electricity sector grew at 3.6 percent against 8.7 percent YoY.

Industrial growth was at 0.5 percent in Q2FY20 as against 6.7 percent in same period last year and service sector growth came in at 6.8 percent during the quarter, lower compared to 7.3 percent YoY.

The private final consumption expenditure (PFCE), a proxy to measure household spending, in Q2FY20 declined to 5.06 percent YoY compared to 9.8 percent (but picked up from 3.1 percent in Q1FY20), whereas government final consumption expenditure increased to 15.64 percent against 10.9 percent YoY and nearly doubled from 8.8 percent in Q1FY20.

As a result of all the above data, experts expect the full year GDP growth at around 4.5-5.2 percent and feel that apart from recent measures like the corporate tax rate cut, it is time for the government to work more on fiscal measures and improvement in credit transmission to get the economy back on track.

Nikhil Gupta, Chief Economist at MOFSL, looks more pessimistic among other analysts, as he expects Q3FY20 growth to weaken further to around 4 percent which will mark the trough.

And as a result, he revised full-year growth forecast down from 5.7 percent earlier to around 4.5 percent for FY20.

"For the fiscal year FY20, our real GDP forecast stands at to 5.2 percent, with risks to further downside. Going forward, we believe fiscal policy will need to play a dominant role in supporting overall growth. The government may choose to mildly deviate from its fiscal deficit target for this year as well as next fiscal," Amar Ambani, Senior President & Research Head at YES Securities told Moneycontrol.

"Q2 data leads up to an annual growth rate close to 5 percent. Stronger fiscal stimulus is required to stem this fall without which it could be still lower as we move into the next financial year. Measures to stimulate demand needs to be taken immediately, in the absence of which counter cyclical actions may not bear fruit," Joseph Thomas - Head of Research, Emkay Wealth Management said.

Apart from expectations of heavy lifting in fiscal policy, Nilesh Shah, MD at Kotak Mahindra AMC and Shubhada Rao, Chief Economist at Yes Bank, also said that credit transmission needs to improve as fast as possible.
First Published on Nov 29, 2019 07:40 pm