Slow Q2 GDP growth: Weak credit, manufacturing need fixing, say experts

The rate of economic expansion was the lowest in more than six years; it slipped from 5 per cent in Q1 this year and 7.1 per cent in Q2 of FY19

India’s gross domestic product (GDP) growth rate fell to 4.5 per cent in the July-September quarter (Q2) of this financial year, compared with 7.1 per cent in the same quarter of 2018-19, government data showed on Friday. The low rate of expansion was mainly on account of a weak manufacturing, falling consumer demand and private investment, and a drop in exports due to a global slowdown.

Here are some expert reactions to India's Q2 GDP numbers:

S C Garg, former finance secretary: A 4.5 per cent growth rate shows that there is deeper slowdown than anticipated. Q3 does not seem to be much different, if indications from core sector data are anything to go by. Economy is not out of the woods yet. Food inflation is also higher. Gross fixed capital formation data indicates a stalling of capital. The overall story is not very good. Overall consumption spend had fallen in the first quarter due to national elections. That was made up in Q2. Also worrying are the signs of slowdown on the revenue side; they will get reflected in some time. The advance tax numbers for Q3 will come soon and they will not be good. It is very unlikely that the government will be able to contain fiscal deficit within its annual target. The demand side of credit is also where the problem lies. People don't take credit if their income is not going up. We need to sort our income story for credit to go up.

Sameer Narang, chief economist, Bank of Baroda: State governments' spending and defence expenditure have helped GDP stay at 4.5 per cent. We will see muted GDP numbers till February, says Sameer Narang of Bank of Baroda.

Indranil Pan, chief economist, IDFC First Bank: The critical issue here is of manufacturing, which is going through a contraction. We may still end the whole year with a GDP growth rate above 5 per cent.

Anubhuti Sahay, senior economist, Standard Chartered Bank: Consumption number at 5 per cent gives us some hope, GVA growth of 4.3 per cent is the lowest that we have seen recently.

Nilesh Shah, MD, Kotak Mahindra AMC: The numbers are in line with market expectations. There is heavy lifting required by the government to move higher. Ease of doing business is improving but we lag our peers, manufacturing constraints are visible. Transmission of credit, which is broken at present, needs to be repaired.

Ajay Srivastava, CEO, Dimensions Corporate Fin Services: The market is not signalling a rate cut; it is signalling a very low risk appetite. The market cannot lend to any risky sector. A large part of India remains unaffected by the moves made by the government.