Asserting that the latest Q2 GDP growth print was “disappointing”, State Bank of India (SBI) expects the country’s GDP growth to slip below 7 per cent level in the second half of the current fiscal.
The forecast comes on the heels of the second quarter GDP growth falling to 7.1 per cent, after recording 8.2 per cent growth in April-June 2018 quarter. The Gross Value Added (GVA) growth stood at 6.9 per cent in the second quarter compared to 8 per cent in first quarter of this fiscal.
“Overall, there are now definite signs of slowdown becoming all encompassing. The incremental growth this fiscal in non-food credit is ₹3.2 lakh crore, while that in food credit is ₹29,500 crore between April-October 2018. The worrying sign is that incremental credit has slowed down significantly in October compared to September. The incremental gross bank credit in October is merely 15 per cent of incremental credit growth in September. The signs are therefore not rosy, and we expect GDP growth to slip below 7 per cent in second half of financial year 2019,” said a SBI research note.
SBI Research note has highlighted the several concerns with the latest GDP print.
First, the core GVA has slowed down significantly from 8.6 per cent to 6.6 per cent. This indicates that there is a perceptible demand slowdown for the private sector. This trend might continue in Q3 because of market volatilities.
Second, Nominal Non-Agri GVA has remained buoyant at 13.4 per cent, but Nominal Agri GVA has expanded at just 2.8 per cent. The growth rate in nominal Agri is lower than real Agri growth implying a negative agriculture deflator, the first time since June 2017. The growth in Agri price deflator has more than halved from the mid-2000s. While this clearly indicates effective food supply management, the flip side is that it is worrying and portends significant lack of rural purchasing power.