Economists differ with govt, revise down GDP growth to below 7.5%

SBI group chief economist says growth in the second half would be less than 7%

Even as the finance ministry remained confident of “high growth”, economists have revised down their projections for economic growth for 2018-19 as the second quarter delivered just 7.1 per cent expansion. 

With the first quarter yielding the four-year high of 8.2 per cent growth, the expansion stood at 7.6 per cent in the first half. This means the economy requires to grow by almost 7.4 per cent in the second half to register 7.5 per cent expansion in FY19, as projected by the finance ministry earlier. 

SBI has cut the growth for FY19 to 7.2 per cent from its earlier projection of 7.4 per cent. 

SBI group chief economist Soumya Kanti Ghosh said the growth in the second half would be less than seven per cent. “Overall, there are definite signs of slowdown becoming all encompassing. The incremental growth this fiscal in non-food credit is Rs 3.2 trillion, while that in food credit is Rs 295 billion between April and October, 2018,” he said. 

“The worrying sign is that incremental credit has slowed significantly in October compared to September,” he said. The incremental gross bank credit in October was merely 15 per cent of incremental credit growth in September. “The signs are therefore not rosy,” he said. 

Ghosh said the repo rate hike by the Reserve Bank of India (RBI) in conjunction with the recent surge in oil prices and liquidity deficit may have shortened the monetary policy lag on consumption growth, which has slowed down significantly in Q2FY19. 

However, he busted the myth regarding credit growth to micro and small enterprises (MSEs). Credit growth to MSEs is quite stupendous post-GST, he said. 
 

CRISIL and CARE Ratings scaled down their projections to 7.4 per cent for FY19 from the earlier forecast of 7.5 per cent. CARE Ratings chief economist Madan Sabnavis said he was pegging GDP growth at one percentage point lower than his earlier estimate. 

CRISIL chief economist D K Joshi said his projections stood at 7.4 per cent with downward bias. 

Attributing subdued GDP numbers for Q2 to slowdown in private consumption, Joshi said, “The forecast has a downward bias, given that global growth prospects are turning weaker than previous estimates. Also, if liquidity issues persist in the financial system, demand could get further dented.” 

B Prasanna, ICICI Bank group executive and head, global markets group, said, “In the light of the current Q2 print and signs of slowdown in high frequency indicators, our FY19 forecasts of 7.5-7.6 per cent will have to be revised lower.” 

The economy had grown at just 5.6 per cent and 6.3 per cent in Q1 and Q2 of 2017-18 and hence the base effect was quite supportive in the first two quarters of the current financial year. 

However, the economic growth rate had stood at 7 per cent and 7.7 per cent in Q3 and Q4 of 2017-18. The smaller the growth in a corresponding period of the previous year, the bigger the growth looks in the succeeding year, which is called the base effect. 

However, Devendra Pant, chief economist at India Ratings and Aditi Nayar, principal economist at Icra, are sticking to their earlier projections. The reason could be that they had already projected low growth numbers for 2018-19. 

Nayar said the GDP expansion in Q2 FY19 is largely in line with our forecasts. 

“Given the risks posed by the YoY rise in commodity prices and depreciation of the rupee, as well as the availability and cost of financing for some sectors, growth in H2, FY19, may remain similar to the initial estimates for Q2, FY19. We are maintaining our GDP growth forecast unchanged at 7.2 per cent for FY19,” she said. 

Pant said, “FY19 may still end up with a GDP growth rate of 7.3 per cent.” He said the growth rate in Q2 was marginally lower than India Ratings projections of 7.3 per cent, but the numbers do not ring in any alarm or indicate any serious deviation from the expected growth numbers.

The finance ministry had projected GDP growth at 7.5 per cent for the current financial year. However, after robust numbers during Q1, it had said that economic growth would surpass 7.5 per cent for FY19. After Q2 numbers were out, it said the economy is on track to maintain a “high” growth rate in the current global environment. 

The Q2 GDP numbers were the last crucial macro-economic data ahead of the policy review by the monetary policy committee (MPC) on Wednesday. The MPC had retained the economic growth projection for FY19 at 7.4 per cent in its October policy review. However, Q2 numbers came lower than its projection of 7.4 per cent.