NEW DELHI: Narendra Modis second innings as Prime Minister kicked off on a rather sour note after a government data showed that India's economy grew at 5.8 per cent in January-March period, its slowest pace in five years.
The slowdown will put pressure on the newly-appointed government and Nirmala Sitharaman, who assumed charge as the finance minister on Friday.
Moreover, unemployment rate rose to 6.1 per cent in the 2017/18 fiscal year, the statistics ministry said, matching data earlier leaked to a newspaper that said it was the highest level in at least 45 years, Reuters reported.
Heres how Dalal Street experts and economics reacted to the GDP numbers:
Amar Ambani, President and Head of Research, Yes Securities
The figure is lower-than-expected and does push the case for a 50-basis point cut and more measures from the RBI. We are looking at measures to boost liquidity from the central bank.
In the immediate future, the new finance minister will have to worry about revenue collection, and so she might have to take the divestment route in the near term to ensure that she is on track on the fiscal deficit front.
On the taxation front, she will have to ensure proper collection and curbs on leakages. On a long-term basis, she will have to look at an overhaul of the entire system to get the economy back on track.
Sanjeev Hota, Head of Research, Sharekhan
Key segments such as agriculture, industry and manufacturing indicate slowdown. Also, the weakening jobs scenario with urban unemployment rate at 7.8 per cent and rural at 5.3 per cent are significant causes of concern. However, the fiscal deficit at 3.4 per cent of GDP, was largely in line with expectations and can be a seen as a silver lining.
Considering indicative data points and scenario, we expect gradual recovery from H2FY20, led by decent monsoon, pickup in consumptions coupled with impetus from monetary policy and measures in upcoming full union budget.
B Prasanna, Group Head, ICICI Bank
In light of this number, we expect some downside bias to our FY20 growth estimate of 7.2%, and the next print for Q1FY20 is also likely to be fairly weak. Against the backdrop of a benign inflation trajectory and sharp slowdown in growth, we expect the MPC to cut rates at the June meeting. The continued focus on reforms by the government and easing financial conditions are likely to support growth in the second half of the current fiscal
Romesh Tiwari, Head of Research, CapitalAim
Growth rate of GDP indicates that slowdown in economy is much more serious than what the market feared. We expect the new government to take serious measures regarding farmers and booster for manufacturing sector.
We expect the RBI may cut interest rates by 50 bps in light of this data. Market may react negatively and trade negatively testing the support at 11,600.
Radhika Rao, Economist, DBS Bank
Slowdown in growth was anticipated, but the actual outcome undershot our sub-consensus estimate. Breakdown affirms that consumption slowdown spilled over into manufacturing activity. This increases the likelihood of another sub-6% in Q1FY20, aggravated by adverse base effects. Downside risks have risen to our FY20 GDP estimate of 7%, even as some of the transient weakness corrects itself in 2HFY20.
For the RBI, domestic growth concerns are likely to override global risk sentiments. Policymakers will tap the available window of sub-target inflation to ease rates by 25 bps on June 6.
Devendra Kumar Pant, Chief Economist, India Ratings & Research
Statistically, we are likely to have a weak first half and relatively stronger second half. Growth is expected to pick up from the third quarter.
The government has a very limited fiscal space. However, current economic conditions call for some stimulus. It will be difficult for the government to adhere to fiscal consolidation path and give stimulus. Any consumption stimulus should not be given, it should be investment stimulus.
The RBI is likely to change its stance to accommodative and probability of a 25bp cut in the forthcoming monetary policy is very high.
Anagha Deodhar, Economist, ICICI Securities
This data is definitely a big negative surprise. Growth is likely to remain weak in the first two quarters of FY20. However, it could pick up in H2FY20. Fiscal pressures are likely to continue in FY20 and hence, the gRead More – Source