GDP Growth Will Pick Up From Third Quarter: Finance Ministry

Mumbai, November 29: The Finance Ministry on Friday tried to allay concerns over low Gross Domestic Product (GDP) numbers released by the Central Statistics Organisation in the evening. Atanu Chakraborty, Secretary Department of Economic Affairs, said that the government has already taken note of the announcement of the rate of GDP growth for second quarter 2019-20 fiscal. “The fundamentals of Indian economy remain strong. GDP growth is expected to pick up from third quarter of FY 2019-20,” the Finance Ministry quoted him as saying in a couple of tweets.

Chakraborty also said that International Monetary Fund (IMF) has projected India's GDP growth at 6.1 per cent in 2019-20 financial year and at 7 per cent for 2020-21 fiscal in its October 2019 report on World Economic Outlook. Earlier, Finance Minister Nirmala Sitharaman in Rajya Sabha accepted that there was a slowdown in the Indian economy but at the same time she denied that there was recession in the country.

On Friday the CSO in its quarterly data revealed India’s GDP further fell to 4.5 per cent in July-September quarter as compared to 5 per cent rare recorded in the April-June Quarter. Friday’s GDP numbers are 26 quarter or six year low since 2013. In Gross Value Added (GVA) terms, the GDP grew at 4.3 per cent in July-September as compared to 4.9 per cent in April-June.

Joseph Thomas, Head of Research, Emkay Wealth Management, said that the Q2 GDP which is at 4.50 per cent indicates a slump in the economic activity and it has become quite pronounced after a slip to 5 per cent in Q1. “This leads up to an annual growth rate close to 5 per cent. Stronger fiscal stimulus is required to stem this fall without which it could be still lower as we move into the next financial year,” Thomas said. Measures to stimulate demand needs to be taken immediately, in the absence of which counter cyclical actions may not bear fruit.

According to Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services Limited, Q2 FY20 real GDP growth at 4.5 per cent was driven almost entirely by investments and was in line with our and market expectations.

Private consumption growth picked up from 3.1 per cent year on year in Q1 to 5.1 per cent in Q2 and government consumption growth almost doubled from 8.8 per cent to 15.6 per cent. “Total investments growth, however, weakened to 22-quarter low of 0.5 per cent vis-a-vis 3.7 per cent in Q1. Similarly, while services activity was supported by fiscal spending, industrial activity grew at record-low pace of 0.5 per cent,” Gupta said.

He added that overall, there were no surprises in 2QFY20 data. Nevertheless, we are afraid that expectations of better growth in 3QFY20 may not pan out. Leading indicators suggest that October 2019, festival month, was the worst in the current cycle. “We believe that growth could weaken further to 4 per cent in Q3 FY20, which will mark the trough. Our full-year growth forecast, thus, is revised down from 5.7 per cent earlier to 4.5 per cent for FY20,” he said.