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GDP growth rate to slow down to 4.7% in Q2: ICRA

ICRA forecasted that there would be a further deterioration in the growth rate of India's GDP and the gross value added (GVA) at basic prices in YoY terms to 4.7 per cent and 4.5 per cent, respectively, in Q2 FY20, from 5 per cent and 4.9 per cent, respectively, in Q1 FY20

twitter-logo BusinessToday.In   New Delhi     Last Updated: November 21, 2019  | 18:38 IST
GDP growth rate to slow down to 4.7% in Q2: ICRA
The government is expected to publish the GDP data for second quarter on November 29.

Ratings agency ICRA expects India's growth rate to further slowdown to 4.7 per cent in second quarter ended September 30, 2019, amid subdued domestic demand and weak investment activity.

As a result, the agency forecasted that there would be a further deterioration in the growth rate of India's GDP and the gross value added (GVA) at basic prices in year-on-year terms to 4.7 per cent and 4.5 per cent, respectively, in Q2 FY20, from 5 per cent and 4.9 per cent, respectively, in Q1 FY20. This was attributed to weak momentum in industry, which dipped to 0.8 per cent from 2.7 per cent in the last quarter.  

The agency, however, expects agriculture and service sector to remain steady this quarter, in line with the performance in Q1 FY20. While the agriculture sector grew at 2 per cent in June quarter this fiscal, service industry reported a robust growth of 6.9 per cent in Q1FY20.

Analysts at State Bank of India and Nomura Holdings have also lowered their growth forecasts for September quarter to between 4.2 per cent to 4.7 per cent. The government is expected to publish the GDP data for second quarter on November 29.

Also Read: SBI cuts India's GDP growth forecast to 4.2% for Q2, 5% for FY20

Aditi Nayar, Principal Economist, ICRA Ltd said: "With subdued domestic demand, investment activity, and non-oil merchandise exports weighing upon volume expansion, manufacturing growth is expected to decelerate further from the marginal 0.6 per cent in Q1 FY20."

"To some extent, lower raw material costs would bolster earnings, and may prevent manufacturing GVA from slipping into a YoY contraction in Q2 FY20," she added.

ICRA said that heavy rainfall in August-September 2019 along with a delayed withdrawal of the monsoon, constrained activities in the mining and construction sectors contributed to a lower demand for electricity from the agricultural and household sectors. In addition to the latter, muted industrial activity reduced the demand for electricity generation.

Also Read: GDP base year row: What's the problem with re-basing India's growth calculations

The rating firm expects yearly GVA growth of mining and quarrying, construction, and electricity, gas, water supply and other utilities to weaken in Q2 FY20 (to around -3 per cent, 3.2 per cent and 2.8 per cent, respectively), relative to Q1 FY20 (2.7 per cent, 5.7 per cent and 8.6 per cent, respectively).

"Various lead indicators of trade reveal a broad-based deterioration in Q2 FY20, which would weigh upon service sector growth in that quarter. However, a sharp pickup in spending by the Government of India (GoI) in Q2 FY20 after the presentation of the Union Budget, and the improved profitability metrics revealed by the earnings of some Banks would support service sector growth," added Nayar.

The pace of growth of commercial paper, corporate bonds and bank credit to large industries and services eased considerably to 6.7 per cent at September-end 2019 from 9.6 per cent at June-end 2019. However, the profitability metrics of the banking sector improved to an extent in Q2 FY20, led by lower provisioning and higher treasury gains, which should bolster the growth of financial, real estate and professional services. Moreover, the pace of expansion of the government's non-interest revenue expenditure increased to a considerable 25.1 per cent in Q2 FY20 from 8.7 per cent in Q1 FY20, which would support the performance of public administration, defence and other services, ICRA said.

"Based on the mixed trend in the output of kharif crops revealed by the first advance estimates of crop production, we expect the growth of agriculture, forestry and fishing to be pegged at 2 per cent for Q2 FY20, in line with the initial estimate for Q1 FY20. However, with the flooding in various parts of the country in August-September 2019, and the delayed withdrawal of the monsoon, excess moisture could lead to crop yields being lower than the initial estimates, in our view," Nayar said.

Edited by Chitranjan Kumar

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