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India's GDP likely bottomed-out, say experts


India’s GDP grew by 5.3 per cent in the second quarter of the current financial year compared to 5.5 per cent in the previous quarter. Analyst estimates had ranged between 5 per cent and 5.9 per cent in a poll of 15 brokerages. 

The economy expanded at its slowest pace in three years in the quarter, suggesting little signs of an early turnaround, despite reform steps taken by the government to lure back investors. 


Asia's third-largest economy is growing faster than many other countries, but the pace is way below the 9 per cent growth that the government has targeted to provide jobs for a booming young population.

Here is what experts say:


It is a little lower. But I still believe the overall growth rate for the year will be between 5.8 and 6 per cent.

The pick-up in third quarter, coming on low base, should be there, taking the Q3 and Q4 numbers higher. Hence total growth for the year should be up.

If you see the fixed capital formation numbers, it is more or less the same as last year. The press note itself indicates that in current and constant prices, the investment is same as last year. There should be some pick up in investment [in the next quarter]. I believe there will be focused attention on improving public sector spending in key sectors, especially roads and infrastructure.

In situations like this, the public investment plays a catalytic role.

I do see a pick-up in recovery in next fiscal, not only because of government spending, but also investor sentiment.

Certainly, I believe that we should be atleast one per cent higher than last fiscal (recovery).

It is a tight rope to walk for the central bank. But before the next review, there is a release of one more set of numbers; that will decide which way the RBI will go. But there seems to be some space for the reserve bank to act.

RBI’s sentiment is influenced by a number of factors. But if inflation rate shows definite signs of decline in a perceptible manner, then that I believe would lead the RBI to act.


We have seen 3 or 4 quarters in sequential decline in services sector. In our estimate, we had pegged growth at 10 per cent for the sector. But we have seen it decline to around 7 per cent. It was bound to correct somewhat as would see it at 7.4 per cent.

We have probably bottomed out in this quarter. In the coming quarter, we could see a marginal uptake. But it would be a slow, gradual recovery.

Consumption has been decelerating. The previous number, we saw 4.4 per cent YoY growth. It has now decline to 3.7. Net exports have been in a negative zone. Investment has been lackadaisical. So clearly, inflation has been playing a big role in correcting consumption strength. So we clearly need to see a comprehensive directional change. But we could see consumption recover hereon (on the back of Diwali). We see it driving the third quarter growth and a recovery in the fourth quarter.

The key important factor is how inflation behaves. It is going to be tying RBI’s hands if it does not directionally print lower numbers. We are likely seeing inflation number peaking in December. I think RBI will take a liquidity-led step towards easing. 


I think we should be relieved. If you look at the speculation before the numbers – people were talking about 5 or below 5 per cent numbers. The relief is that the government has started acting. There was a lot of uncertainty a few months that. I am sure we can achieve 7-8 per cent even though global economy is not in a good state. We should improve investor’s confidence.


These numbers confirm that economic activity continues to remain sluggish and unless the growth performance in the second half improves considerably, we will have to settle for a sub-6 per cent growth this year. This is not good news for an economy that must generate a large number of new jobs every year.

It is essential that the reform agenda is carried forward with vigour and that the recently announced measures are implemented in earnest. Only then we will be able to witness a paradigm shift and place the economy on the path of higher and sustainable growth trajectory. At the same time, it is imperative for the government to give a renewed thrust to the manufacturing sector which is not showing signs of any sustained pick-up.

While it is heartening that investment activity is picking up, with the growth in gross fixed capital formation for Q2 increasing to 4.1 per cent, up from 0.7 per cent growth registered in first quarter, it may still be early to say that the slowdown in investment activity has bottomed out.


Today's number suggests that the economy still remains soft, but not as weak as some people were anticipating. Growth below 5 per cent looks very unlikely to me.

The growth is bottoming and we will see an improvement from here, though not a very strong improvement.

The growth is below the Reserve Bank of India's trend growth expectation, and I think the central bank will cut rates further from here. I expect a repo rate cut in January and there could possibly be another cash reserve ratio cut in December.


There is some minor improvement in manufacturing sector but it is still scraping the surface while services sector still looks weak. The underlying momentum for growth is still weak in India. Government spending is fairly a big part helping support the momentum. There could be some realignment in expectations at the margin for those who were expecting a sharp slowdown in growth. I don't think this print will change RBI's views as it is flattish from the previous quarter and should be within RBI's expectation. We expect GDP for December quarter to be around 5.5-6.0 per cent and in March at 6.0-6.5 per cent.


From the RBI perspective, this number should not make much difference because the central bank's full-year estimate is similar to this. Also, this data is two months old and the RBI will be looking at current trends. The sentiment has improved, we need to see whether the industrial production data also shows improvement.

I don't think the RBI has completely disregarded the weakness in growth, but we need to see the next two inflation readings. If inflation peaks out below the RBI's estimate and the trend of lower inflation continues, chances of a rate cut go up in January. But at this point we expect the RBI to cut rates by 25 basis points in March.

With inputs from Reuters

Story first published on: November 30, 2012 11:34 (IST)

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