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GDP growth rate in Q2 will be possibly sub 4.5%: SK Ghosh, SBI

If we are in the range of 5.5-5.8% even in Q3 and Q4, growth rate could go even below 5%

ET Now|
Nov 13, 2019, 09.54 AM IST
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ETMarkets.com
SK Ghosh-SBI-1200
Monthly acceleration rate is now down to a historical low of 17% in September. It has been declining from around 65% to around 17% right now, says SK Ghosh, Group CEA, SBI. Excerpts from an interview with ETNOW.


What makes you believe that the GDP print for the second quarter is going to be sub 5%?
All indicators are showing a slowdown, had shown a slowdown in the July to September quarter. If you look into the acceleration rate of the 33 leading indicators which we track and which has the close correlation with the GDP growth rate, monthly acceleration rate is now down to 17% in September. That is a historical low and it has been declining from around 65% just a couple of years back to around 17% right now. Deceleration has been significant and it has gained pace from March 2019. While there could always be some plus minus 10-20 bps impact on the estimates, it is certain that the GDP growth rate this quarter will be sub 5% and possibly sub 4.5%.

What you are saying is that India now slips below the 5% GDP growth club. Now 5 and 4.99 does not matter but the minute you go below 5%, the money allocators will be wary?
Yes, I do not want to get into investment allocation, but the fact is that the growth rate this quarter will be significantly on the lower side. However, thanks to the huge RBI surplus transfer, there could be an artificial bump up to the growth rate -- may be from 4.2%, it can go to 4.3-4.4%, But the point is that Q3 and Q4 as of now does not look promising. So, in order to get to 5% growth rate, at least one of the quarters has to hit 6% and that could be in Q4. If you are in the range of 5.5-5.8%, even in Q3 and Q4 that could pool down the growth rate to 5% or even below that. This year, the growth rate does not look promising as of now.

Given the fact that it has been cut to sub 5%, this is obviously an indication that next year’s growth is now going to be sub 6%?
As of now, we have pegged an extra growth rate of 6.2%, Next year could be favourable because there a lot of steps are being taken. Even the fact that RBI is cutting rates and the transmission happens with a lag, there could possibly be some amount of pick up in consumption. But we again believe that rate cuts may not work out because the household leverage is at higher levels and given the fact that consumers are not willing to spend, you will see that this year, the consumer spending post Diwali was very minimal which is again a contrarian trend. So, if the consumers are not spending, demand is not coming back.

The steps which the government has taken will only take time to permeate through the system. We are still at 6.2% to next year as of now. But it will depend on how the situation evolves.

Should one look to the central banks and hope for larger rate cuts? The central bank has already been in an easing mode and does not have much elbow room. If the GDP is to be sub 5%, what can we expect from them?
Obviously, there will be pressure on the central bank to cut rates but beyond that, a couple of steps are required. The resolution of the NBFC sector crisis is needed because the NBFC sector has been doing badly and the credit flow has almost collapsed from the sector. Then there are sectors like power where in October, the demand was at an all-time low. In a growing economy, it is very difficult to believe that power demand is at negative levels. Structural problems with the discoms, the telecom sector are already in the news.

So, we need to address sector-specific problems one by one and the fiscal and monetary policies will only work on the supplement we need to sector specific policies. For example, we have to see IBC resolutions are satisfactory. It is not an easy thing to do. It is not that the fiscal and monetary policy will do everything. Until and unless we solve the basic problems, it will be difficult for growth to come back.

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