GDP plummets to 4.5% in Q2 FY20; here are some quick reactions

The economic growth slowed to 4.5 per cent in the July to September quarter from 7.1 per cent in the corresponding period of last year, according to the government data showed on Friday (November 29). The Indian economy had witnessed a weak performance last quarter with the GDP growth rate dropping to 5 per cent.

The slowdown in Q2 FY20 was largely due to a sharp dip in the manufacturing sector and agriculture output, said the Ministry of Statistics and Programme Implementation in a statement. The weak GDP growth in Q2 was also caused by grim industrial output data which contracted 0.4 per cent during the quarter against 3 per cent expansion in the preceding three months.

Chief Economic Advisor KV Subramanian on Gross Domestic Product (GDP) data said "We are saying again that the fundamentals of the Indian economy continue to be strong. GDP is expected to pick in Quarter 3." 

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Reacting over the plummeting economy, Congress spokesperson Randeep Singh Surjewala tweeted, "India’s GDP has collapsed to an abysmal 4.5%. We are in a virtual free-fall. This is the lowest GDP quarter in 6 years. But why is the BJP celebrating? Because their understanding of GDP (Godse Divisive Politics) suggests double-digit growth levels. All in the perspective!"

ANAGHA DEODHAR, ECONOMIST, ICICI SECURITIES, MUMBAI

"The GDP data confirmed fears of weak growth momentum. Measures taken by the government should boost growth in H2, however we will closely monitor high-frequency data. Core sector data for October showed steep contraction. Hence, the weak momentum is likely to have continued in first month of of the third quarter as well."

"A rate cut is definitely on the cards. Although we are skeptical about monetary policy`s effectiveness in boosting growth in the current scenario, growth concerns are likely to make a strong case for rate cut."

"Monetary policy clearly has limitations when it comes to boosting growth in the present situation. Hence, fiscal policy will have to do the heavy-lifting to boost growth. Sector-specific measures and increased government spending could be the quickest way to boost growth in the near term."

JOSEPH THOMAS, HEAD OF RESEARCH, EMKAY WEALTH MANAGEMENT, MUMBAI

"Second-quarter GDP at 4.50 % indicates a slump in economic activity and it has become quite pronounced after a slip to 5% in the first quarter. This leads up to an annual growth rate close to 5%."

"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." 

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL SERVICES, MUMBAI

"A slowdown in GDP to 4.5% and GVA to 4.3% was primarily on the back of sustained weakness in activities in core sector as well as manufacturing sector."

"Low investment confidence is clearly reflected in a contraction in fixed investment spending during the second quarter. This was already signalled by a near collapse of financial credit from banks and non-banking financial companies (NBFCs)."

"Luckily, rural belts have started showing early signs of mild recovery, thanks to improved cashflow prospects for farmers in a few states. Going by the underlying trend and momentum, I don`t expect GDP growth to cross 5% for the full FY20."

SUJAN HAJRA, EXECUTIVE DIRECTOR, CHIEF ECONOMIST, CO-HEAD - RESEARCH, ANAND RATHI SECURITIES, MUMBAI

"We were expecting numbers to range from 4.8 to 5.2%. It has come significantly below that. Overall, bad set of numbers. Going by the indicators like Diwali and car sales, our sense is that it will pretty much bottom out at this level."

"There should be a significant recovery in the second half. Corporate tax cut will lead to better performance but how much is definitely is a question. We expect continuation of rate cut and with this GDP numbers there could more likely be a 25 basis points cut." 

"The government is already taking various measures. But, it should step up spending and infuse more confidence and be more categorical on the NBFC front."

GARIMA KAPOOR, ECONOMIST AND VICE-PRESIDENT, ELARA CAPITAL, MUMBAI

"We believe while the growth may have bottomed out in Q2FY20, we are still sometime away from a strong broad-based recovery. We expect FY20 H2 growth to recover to 5.6% clocking a growth of 5.2-5.3% in FY20."

"While Q2FY20 CPI inflation was broadly within the Reserve Bank of India (RBI`s) estimates, the 4.62% reading for October was well above the estimates led mainly by food prices especially due to inclement weather. We expect RBI to ease policy repo rate by 25 basis points (bps) in its December policy and retain its accommodative guidance..."

"The risk aversion in the economy is affecting recovery in demand. As such, we believe that there is need to improve the credit conditions in the economy. It is also pertinent that the government continues to spend in order to avoid conditions of tight liquidity that were prevalent in early part of the year."

ARUN KUMAR, HEAD OF RESEARCH AT FUNDSINDIA.COM, MUMBAI

"The tepid domestic growth has been led by weak investment activity, moderate consumption growth and slow global growth environment. While further policy support can be expected from both the government and the RBI, we expect the recovery to be more gradual than a V shaped sharp recovery."

(With inputs from Reuters)