India GDP Growth Slows to 7%, Pressure on RBI to Cut Rates
1. Speedily Scoring GDP
Becomes Slow-Footed
STRONG CASE FOR RATE CUT? Economic growth slows to 7% in June
quarter although investments pick up and manufacturing shows robust
expansion
2.
3. Contd..
India's economy expanded 7% in the first quarter, well below expectations and
slower than the preceding three-month period, putting a dent in the Modi
government's optimism about a strong recovery and adding to pressure on the
central bank to cut rates. But India is still on course to overtake China's growth rate
to become the world's fastest-growing major economy .Before the growth number
was announced on Monday evening, the government made a pitch to Standard &
Poor's for a rating upgrade, citing growth and economic fundamentals among other
things. While China's economy expanded 7% in April-June quarter, the consensus
expectation for India's GDP growth had been 7.4%. The government has been
battling disappointment over not living up to its promise to get going on reforms,
failing to get key legislation passed because of Opposition resistance. This includes
the land acquisition amendment and legislation related to the goods and services
tax (GST). Government spending, which has been stepped up in order to make up
for muted private investment, doesn't seem to have filtered through into the
economy yet.
4. Contd..
Separately released data showed that the government has spent 36% of its capital
budget in the first four months of the current fiscal itself. In other disappointing
news on Monday, the core sector index which measures the output of eight
infrastructure industries rose a modest 1.1% in July , pointing to the challenge
facing the government in getting the investment cycle going.
Meanwhile, a worsening monsoon with a rainfall deficit of 11% has raised concerns
about rural demand with the festive season round the corner.
The government needs to find ways to tackle short-term difficulties, said
economists.
“There's a lot of emphasis that's being put on the opportunities that lie ahead for
India and not too much attention is being paid to the challenges that remain today
,“ said Jyotinder Kaur, principal economist, HDFC Bank, summing up the sentiment
that more action is needed on the ground if India is to make the most of
opportunities arising from China's economy slowing down.
5. Contd..
The Reserve Bank of India will face increased pressure to cut rates with the
data showing below par growth and inflation having slowed. That could
come sooner rather than later, going by some of the signals that could be
read into Governor Raghuram Rajan's statement in the US. “We are on a
phase of accommodation. We are still in that phase. We are looking at the
data to see what more room we have,“ he was cited as having said by PTI.
RBI's next monetary policy announcement is scheduled for September 29.
GDP at current prices, which includes the effects of inflation, was up only
8.8% compared with 13.4% in same quarter last year, suggesting hardly any
inflation pressures. “While the government stands committed to further the
reforms agenda, we need to equally create conditions that provide capital at
affordable cost to our entrepreneurs,“ the Federation of Indian Chambers of
Commerce and Industry grouping said, calling for a rate cut.
6. Contd..
RBI has cut the policy rate by 75 basis points since January amid a sharp fall
in consumer inflation and negative wholesale inflation for many months,
opening it up to rising criticism that it's overcautious. The government has
repeatedly hinted at the need for rate cuts, seeing it as the only lever that
can get consumer demand going as its own hands are tied because of fiscal
constraints.
“I think that, if you think that, looking ahead the real problem is deflation
and we have managed to get inflation under control, then that has
implications on how we should run monetary policy going forward,“ Chief
Economic Advisor Arvind Subramanian told ET Now last week.
The slowdown is consistent with private forecasts that see India slowing from
7.3% growth in FY15 because of the deceleration in the Chinese economy
that's likely to pull down overall global growth.
7. Contd..
Ratings agency Moody's has already lowered its growth estimate for the year to 7%
from 7.5% estimated earlier, citing concerns on reforms and other factors.
Going forward, the signals are mixed. While corporate results have been lacklustre,
indirect tax collections point to some strength in manufacturing, further
substantiated by strong car sales in July.
Cue for the RBI to act
Growth has not gained momentum, obviously, with only two sectors -construction,
besides trade, transport, communications, etc -showing a higher growth rate in Q1
this year over Q1 in 201415. Significantly, Investment has failed to pick up and the
Investment Rate has declined further. Exports show an absolute decline.
Agricultural growth has dipped and the sector, electricity, gas and water supply, has
seen sharp deceleration. The remarkable feature of the latest numbers is that
economy-wide price rise has been practically zero in Q1.
8. For details and bookings contact:-
Parveen Kumar Chadha… THINK TANK
(Founder and C.E.O of Saxbee Consultants & Other-Mother
marketingandcommunicationconsultants.com)
Email :-saxbeeconsultants@gmail.com
Mobile No. +91-9818308353
Address:-First Floor G-20(A), Kirti Nagar, New Delhi India Postal Code-110015