FinMin's claim of slowdown having bottomed out has analysts divided

Following the release of the gross domestic product (GDP) data, the finance ministry on Friday said slowdown had bottomed out and it expected a gradual recovery from the October-December quarter onwards.

Economists and analysts are, however, divided — some agreeing with the Centre’s assessment, others claim the economy will continue to slow for a while.

In a briefing after the data was released, Economic Affairs Secretary Atanu Chakraborty and Chief Economic Advisor Krishnamurthy Subramanian both insisted that the fundamentals of the economy continued being strong and an uptick in GDP was expected soon.

“We are saying again that the fundamentals of the Indian economy continue to be strong and GDP is expected to pick up in the third quarter,” Subramanian said.

Some economists agreed with this.

“The economy is estimated to see higher growth in the second half of the fiscal year. We estimate GDP growth of 6.3 per cent in the second half of 2019-20. The GDP growth for the whole year is pegged at 5.5-5.6 per cent,” said Madan Sabnavis, chief economist at CARE Ratings.

“Compared to the past four slowdown cycles, several economic fundamentals are in a much better shape today. Inflation is low and is expected to remain so because of the excess capacity in the economy. This gives the RBI elbow room to cut rates, which is highly anticipated in the upcoming December meeting,” said Rumki Majumdar, economist with Deloitte India.

“With significant risks looming over global economic activities and trade, we expect a gradual but steady recovery in the coming quarters,” Majumdar added.

This sentiment was reflected by industry bodies like Assocham as well.

However, a number of other analysts pointed to the raw data available for the festive season so far and said any meaningful recovery was still some time away.

“We are looking at exhaustion of all policy options. With little room for monetary policy action and the fiscal space being marginal, we are in for a long haul in the terms of continued slowdown,” said D K Srivastava, chief policy advisor at EY.

Figures released on Friday showed the output of the eight core sectors of the economy witnessed historically high levels of contraction in October. This is expected to impact overall industrial production through the index of industrial production, which had contracted by 4.3 per cent in September, nose diving to an eight-year low.

Also in October, lower receipts from processed petroleum exports and depressed global conditions led to merchandise exports contracting for a third straight month. Overall domestic vehicle sales also declined for the seventh-straight month, falling 12.76 per cent.

“With the just-released index of eight core industries falling in October, bottoming-out of growth could be further down the road and recovery is unlikely to be V-shaped as consumer demand, credit supply and risk appetite remain lackluster,” said Sreejith Balasubramanian, economist, fund management at IDFC AMC.

“The slowdown has deepened and is now expected to remain extended than previously anticipated,” said Arun Singh, lead economist at Dun & Bradstreet India. Singh added that risk of contagion prevailed. And issues with cooperative banks and NBFCs showed that the crisis in the financial sector had not faded away.