Home / Politics / Policy /  GDP growth at 5% in Q1, more rate cuts from RBI likely

India’s GDP growth decelerated to a more than five-year low at 5% in the June quarter of 2019-20, against 5.8% in the March quarter. This is way below analysts’ expectations of economic growth at 5.7% in the June quarter.

This is likely to increase demand for a stimulus package from the government and indicates that the pain for the economy is not over yet.

Manufacturing growth almost collapses at 0.6% in the June quarter, against 3.1% in the March quarter, in a sign of the dismal state of the industrial sector of the economy. Among services sectors, only trade, hotels, communication segment have grown faster in the June quarter at 7.1%, compared with the March-quarter growth of 6%. Both financial services (5.9%) and public administration services (8.5%) decelerated in the June quarter. The only sector that registered a robust pick-up is electricity, growing at 8.6% in the June quarter, from 4.3% in the preceding quarter.

The RBI had projected India's GDP growth for FY20 at 6.9%– in the range of 5.8-6.6% for the first half (April-September) of 2019-20 and 7.3-7.5% for the second half (October-March). While most analysts and financial institutions estimated a growth rate of 6.5-7% for 2019-20, Moody’s pegged GDP growth at 6.4%.

The Reserve Bank of India, under governor Shaktikanta Das, has reduced policy rates for four consecutive times in its bi-monthly monetary policy reviews, with an unorthodox 35 basis point cut earlier this month to support growth. The RBI, in its annual report released on Thursday, said reviving consumption and private investment demand remained the highest priority in 2019-20, signaling that more rate cuts could be on the anvil. A further slip in GDP growth in the June quarter is likely to lead to demands for rate cut by at least 50 basis points or more in its next policy review in October.

Also read: Economists call for sharper rate cut by RBI to boost consumption

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