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Slowdown blues | Economy to start looking up in H2 FY20, say economists.


Date: 19-10-2019
Subject: Slowdown blues | Economy to start looking up in H2 FY20, say economists
Despite the recent revision in India's growth estimates by domestic and global financial institutions, economists believe the economy will start looking up from the second half (H2) of FY20.

But some like Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Shares & Stock Brokers, warn that a fuller recovery may take four to six quarters.

Worries over the health of the economy have got only shriller in the last few months. Industrial productivity for August contracted 1.1 percent year-on-year (YoY) vis-a-vis 4.3 percent YoY growth in the preceding month.

Recently, the International Monetary Fund (IMF) reduced India's growth forecast for FY20 by 90 basis points to 6.1 percent from its July estimate.

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This after Moody's Investors Service cut India's growth forecast to 5.8 percent from 6.2 percent earlier.

On October 4, the Reserve Bank of India too revised its FY20 growth estimates to 6.1 percent from 6.8 percent earlier. Similarly, Asian Development Bank (ADB), Organisation for Economic Co-operation and Development (OECD) and several rating agencies have trimmed their India growth forecast.

The government has taken a volley of steps to counter the slowdown in the economy. Economists cite reduction in the corporate tax rate as one of the government's boldest reform initiatives as a low corporate tax rate will boost investment, but warn that the results will take some time to show up.

Deepthi Mathew, Economist, Geojit Financial Services, said that since the economy is facing demand-side issues it will take time for the economy to bounce back to the growth trajectory.

This has spurred demands for a cut in Goods & Service Tax (GST) rate and personal income tax slabs to boost consumer spending. But given the current fiscal situation, most economists feel the likelihood of the government opting for such measures is small.

Hajra suggests the government should focus on front-loading budgeted spending, advise banks to boost credit growth and bring down the interest rate and try to induce corporate sector, including foreign investors, to accelerate capex.

Parts of the current growth slowdown in India are due to structural factors including the economy adjusting to the new realities of GST, RERA, IBC, stricter banking norms and move towards a less-cash economy. There are also international factors like slowing global economic growth, protectionist trends, severe risk aversion by investors and geopolitical uncertainties.


Ranjan Chakravarty-Product Strategy, Metropolitan Stock Exchange, is uncomfortable with the growth slide but said it is not really alarming given the global scenario. "One or two-quarters of output contraction can be managed. Such slowdowns occur due to delayed responses to demand. We view the current slowdown to be temporary."

He feels the GST rate should be slashed next. “If the tax and rate cut regime continues, we expect the economy to turnaround within the next two to three quarters at most," he claimed.

Likelihood of a rate cut
An uptick in retail inflation has posed a question of whether RBI will prolong its rate cut regime or not. Economists and market experts think a rate cut is possible at its next policy meet in December.

Hajra expects RBI to continue with its rate cuts. "We expect a 25 bps rate cut at its next policy meet," he said.

Mathew too concurs with Hajra. Chakravarty said a 50 bps rate cut would be ideal but expects a minimum 35 bps cut.

Source: moneycontrol.com

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