India's economic growth is expected to have declined to below 5 percent in the second quarter of the financial year 2019-20 due to weak consumer demand, slowing factory activities and negative impacts of the prolonged monsoon. A CNBC-TV18 poll projected Q2 GDP growth of 4.64 percent, down from 5 percent in the Q1FY20 and 7 percent from the same quarter a year ago. In the first quarter, GDP growth fell to an over six-year low of 5 percent in an unexpected surprise for the government and the Reserve Bank of India.

Share Market Live

NSE

GVA growth in the July-September quarter is expected to have fallen to 4.2 percent from 4.9 percent in the last quarter and 6.9 percent the same period last year.

If the latest figure for expansion of GDP is 4.7 percent or less, the quarter will have registered the slowest expansion in 26 quarters, since 4.3 percent in January-March 2013, according to Reuters.

Government sources told CNBC-TV18 earlier this month that GDP growth may not see an uptick in the second quarter of the fiscal year 2020 and may further slip below 5 percent recorded in the first quarter.

The government will release GDP data on November 29 after 5:30 PM.

According to the poll, FY20 GDP growth is expected to come in at 5.25 percent, compared to 6.8 percent in the last fiscal.

Graphics: Reuters

Macroeconomic data released earlier this month also indicated a severe slowdown in the economic activities. Industrial production shrank by 4.3 percent in September, registering the weakest performance in seven years due to output decline in manufacturing, mining and electricity sectors.

Extended monsoon seasons, particularly heavy rains in October and November, have damaged crops in several parts of India. This has also resulted in rising prices of vegetables such as onions and tomatoes in the last two months, accelerating food inflation to nearly 8 percent in October from a year ago.

The RBI has reduced interest rates by a cumulative 135 basis points this year to 5.15 percent and it is expected to cut the repo rate in December as well for the sixth time in a row. According to a Reuters poll, the RBI cut the repo rate by 25 basis points to 4.90 percent at its December 3-5 monetary policy meeting.

However, analysts believe the reduced rates would contribute a little to lift the economy. "We don't expect any miracles from lower borrowing rates," said Hugo Erken, head of international economics at Rabobank.

"In order to push India's growth trajectory back on track, the government should step up its efforts by forging a reform package which tackles labour market rigidity, housing market woes, et cetera."

Many economists have also lowered India's GDP growth forecast for the second quarter and the current fiscal year. Nomura is expecting GDP growth to moderate to 4.2 percent in Q2 from 5 percent in the Q1FY20.

"We are expecting a deeper trough and also a sub-par recovery,” Sonal Varma, MD and chief India economist, Nomura told CNBC-TV18. "Our view is that there will be further growth disappointment owing to some key reasons. We also think that there is further downside to the growth outlook.”

First Published:Nov 27, 2019 12:43 PM IST