Without this X-factor, GDP growth would be even worse; how govt masked slowdown

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November 29, 2019 7:30 PM

The eye-watering results of the second quarter have shown that it will take a few more months before the private consumption and investment activity in India gets back the lost momentum.

gdp, gdp annual rate, annual growth, q2 gdp growth, second quarter, indian economy The government spending grew by more than 20 per cent in Q2 FY20.

While India’s GDP growth fell to more than a six-year low of 4.5 per cent in the second quarter, it is believed that the results would be even worse if it were not for the government spending propping up the economy in the recent months. The government spending grew by more than 20 per cent in Q2 FY20. Even the Q2 GDP growth has risen to 4.5% due to high government consumption, said DK Joshi, Chief Economist, CRISIL, in a tweet.  The eye-watering report card of the economy in the fiscal second quarter, which follows the dismal GDP growth in the preceding quarter, has shown that it will take a few more months before the private consumption and investment activity in India get back the lost momentum. Here are the comments from the analysts:

Sreejith Balasubramanian, Economist – Fund Management, IDFC AMC 

Q2 FY20 real GDP of 4.5% on-year was broadly in-line with expectations, but nominal GDP growth was much slower at 6.1% (below 8% in Q1 FY20 and 12% in Q2 FY19). Manufacturing growth contracted, while both private consumption and investment stayed weak. Some support from government spending was expected, given combined central and state expenditure grew 22.5% on-year in Q2 FY20, compared to 1.3% in the Q1 and thus, GVA excluding ‘Public Administration, Defence, and Other Services’ is much lower, essentially reflecting the high government contribution to the headline number. 

Also Read: Economic slowdown blues get deeper; India GDP growth slips further from 6-year low

Aditi Nayar, Principal Economist, ICRA

The economic growth slowed further in Q2 FY2020, reflecting anaemic investment activity, even as central and state government spending in the post-election quarter propped up the momentum of GDP expansion. The sequential uptick in growth of private consumption expenditure in Q2 FY2020 is somewhat at odds with the evidence from various sectors regarding subdued consumption sentiment in rural as well as urban areas.

Rahul Gupta, Head of Research – Currency, Emkay Global Financial Services

As expected Q2 FY20 GDP has dropped to 4.5%, which is the lowest level for 6 years compared to 5% in Q1 FY20. India’s manufacturing and industrial sectors have been witnessing a slowdown along with a fall in consumer demand, private investment and global slowdown. Thus, to revive growth we expect RBI to cut the repo rate by 25 bps on Dec 5 policy.

Joseph Thomas – Head of Research, Emkay Wealth Management

Q2 GDP which is at 4.50 % indicates a slump in economic activity and it has become quite pronounced after a slip to 5% in Q1. This leads up to an annual growth rate close to 5%. A 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 countercyclical actions may not bear fruit.

Arun Singh, Lead Economist at Dun and Bradstreet India

The conundrum of soaring domestic stock market indices in India, slowing growth, rising inflation and elevated unemployment presents a complex challenge for policymakers to address. The slowdown has deepened and is now expected to remain extended than previously anticipated. Optimism levels of businesses and consumers have fallen. The governance deficits in the financial sector cause worry for financial stability. Risk of contagion prevails. Governance issues in one of the co-operative banks and bankruptcy filings by one the largest NBFC companies shows the crisis in the financial sector has not faded away.

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