A research by State Bank of India reveals that GDP growth will slow down further in the second quarter (July to August) after it hit a six-year low of 5% in the first quarter (April to June) of the current financial year (April 2019 to March 2020).
In a research note titled “Q2 GDP at 4.2%, FY20 at 5.0%: We should ride the long winter!”, the SBI has rolled back its forecasts for India’s GDP growth for the current from 6.1% earlier to just 5% now. For the next financial year (2020-21), it expects GDP to grow by 6.2%.
The SBI note details the dip in its composite leading indicator, which SBI uses to forecast GDP growth. Accordingly, it states that the further slowdown is “on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure”.
SBI states the acceleration rate in its 33 high frequency leading indicators — that is indicators that show effect or changes before the rest of the economy — had fallen from 65% in Q1 (when GDP grew by 5%) to just 27% in Q2.
It also underlines the adverse impact due to excessive rainfall related flooding and the ongoing global economic slowdown.
Against the backdrop of a growth slowdown, SBI does warn the government against policy surprises. “Against such growth slowdown, it is imperative that India (that is, the government) adheres to no negative policy surprises in sectors like Telecom, Power and NBFCs. For example, it is imperative that a lasting solution is worked out for the NBFC sector that has been much delayed now,” it states.
FACTORY OUTPUT CONTRACTS TO 7YEAR LOW
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