A continued slowdown in private consumption and sluggish growth in the manufacturing sector could keep economic growth muted for the rest of 2019-20, though successive rate cuts by the RBI and government measures to address the slowdown could boost prospects in the second half of the fiscal.

With the GDP growth slowing to a 25-quarter low of five per cent in the first quarter of 2019-20, most economists are paring their forecasts and believe that economic expansion is likely to be less than 6.5 per cent for the full fiscal year.

“Considering the present macro environment, it will be difficult to achieve the 7 per cent growth target in this fiscal. We are now estimating GDP growth at 6.1 per cent in 2019-20 with downward bias,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India, in a research report.

The report said was a collapse in nominal GDP from 12.6 per cent in the first quarter of 2018-19 to eight per cent in the first quarter this fiscal. Also growth of GDP of ‘Financial, Real Estate and Professional Services’ within the services sector decelerated to 5.9 per cent in the first quarter.

Consumption slowdown

Consumption slowdown is more entrenched and has declined by ₹1.5-lakh crore in the first quarter from the last quarter of 2018-19, highlighted the report.

The Economic Survey 2019 had pegged GDP growth at seven per cent this fiscal, a tad higher than 6.8 per cent in 2018-19. Shubhada Rao, Chief Economist, YES Bank, said GDP growth is likely to maintain a tepid pace in this fiscal and revised growth forecast for the fiscal by 40 basis points to 6.3 per cent.

She, however, expects growth in the second half to recover on the back of government measures, revival in the monsoon and schemes like PM KISAN and transmission of rate cuts.

Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers, said, “While the slowdown is broad-based, the deterioration is most marked for private consumption and manufacturing. We feel that India would do better in the second-half of the fiscal. Yet, at least 7.5 per cent growth would be needed in the last two quarters to reach even 6.5 per cent growth for the whole year, which looks like an uphill task.” He added that there are structural components to the slowdown as well.

However, CARE Ratings expects GDP growth at about 6.7-6.8 per cent this fiscal as it believes the second half is expected to see some pickup in demand with the festive season and favourable monsoons so far this year could lead to improved rural income. “These measures and seasonal factors are likely to revive the growth going forward,” it said.

Published on September 1, 2019