Even as the government continues to stress that economic slowdown is cyclical in nature and a recovery will soon be visible, high frequency data suggests otherwise. After the poor IIP numbers, Kotak said that India's gross domestic product (GDP) growth rate during the second quarter of 2019-20 financial year may fall to 4.7 per cent, from 5.2 per cent predicted earlier.
After a disappointing start to the first quarter of FY-20 amid a consumption and investment-led slowdown, high frequency indicators suggest that economic activity has worsened in 2QFY20, despite a pick-up in government spending, Kotak said.
“We now expect 2QFY20 GDP growth at 4.7 per cent as against the earlier prediction of 5.2 per cent. Even though the government has announced corporate tax rate cuts and a new fund to support stalled projects, they are unlikely to contribute substantially to growth in the near term in the absence of demand,” Kotak report said.
Owing to the continued slowdown, Kotak expects the MPC to cut the repo rate by another 50 bps in the rest of FY2020 as some of the increase in food inflation is seasonal and abundant rainfall should lead to lower food prices ahead.
Earlier, global rating agency Moody's had cut India's outlook from 'stable' to 'negative' saying that its decision to change the outlook partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody's had previously estimated.
The government, however, said it has undertaken a series of financial sector and other reforms to strengthen the economy as a whole.
"The fundamentals of the economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in the near and medium term," the Union Finance Ministry had said. - IANS