Growth likely to slow down in Q2

Growth in the second quarter is expected to slow down—and likely to be the lowest in 18 months. While the government will release growth figures for the second quarter at 4 pm today, a Reuters poll of economists has estimated growth in the July-September quarter at 6.5 per cent.

This is below the Reserve Bank of India’s forecast 7 per cent. In the previous quarter, it was 6.7 per cent. The economists have attributed the slowdown to weak urban consumption which is the result of higher food inflation.

“Economic activity, as measured by gross value added (GVA), was forecast to show a more modest 6.3 per cent expansion compared with 6.8 per cent in the previous quarter,” the Reuters report said. “If the projection holds, it would mark the third consecutive quarter of slower growth, though India would remain the world’s fastest growing major economy.”

The RBI has maintained its gross domestic product (GDP) growth forecast for the fiscal year at 7.2 per cent, down from 8.2 per cent in the previous fiscal year, while several private economists have lowered their projections.

Economists said private consumption, which accounts for about 60 per cent of India’s GDP, has been affected by a slowdown in urban spending because of higher food inflation, borrowing costs, and sluggish real wage growth, despite signs of recovery in rural demand.

Retail food prices, which make up nearly half of the consumption basket, rose 10.87 GDP year-on-year in October, eroding households’ purchasing power.

Toshi Jain, an economist at J.P. Morgan, said recent months have seen a slowdown in high-frequency indicators such as industrial output, fuel consumption, and bank credit growth, along with weak corporate earnings, affecting growth momentum.

Top Indian companies posted their worst quarterly performance in over four years for the July-September period, raising concerns that an emerging economic slowdown had begun to affect corporate earnings and investment plans, the Reuters report said.

However, the RBI is expected to keep its policy interest rates unchanged next week amid concerns over high retail inflation, according to the economists.