Five reasons to watch out for the June quarter GDP growth figures out today

The National Statistical Office on Friday will release India’s economic growth figures for the April-June quarter of 2019-20. Here are the five probable implications:

Economic Slowdown:

Most analysts expect the GDP growth rate in June quarter to be less than 5.8% secured in the March quarter of 2018-19 which was a five year low. If the GDP print comes below 5.8%, then it will be confirmed that the deceleration in economic activity is still ongoing and a recovery may not happen anytime soon. On the contrary, if the GDP print comes above 5.8%, it may lead to conclusion that the process of economy recovery has begun.

Cyclical versus Structural:

The debate over the nature of the current economic slowdown among policy makers and analysts has intensified in recent times with some holding that we are going through a structural slowdown and others maintaining that it is a cyclical slowdown and may end sooner than later. While a structural slowdown may require big ticket economic reforms and fresh ideas to steer the economy away from the current downturn, a cyclical slowdown could be dealt with by sector-specific incentives to minimize the temporary pain.

The Reserve Bank of India (RBI) in its 2018-19 annual report released on Thursday said it is difficult to diagnose the nature of India’s slowdown and that it could be a soft patch mutating into a cyclical downturn. “The diagnosis is difficult; these conditions are hard to disentangle cleanly, at least in the formative state,” the central bank said in the report.

Stimulus demand:

Finance minister Nirmala Sitharaman last Friday announced a slew of confidence building measures for both investors and consumers, but stayed away from announcing any fiscal stimulus package. While clamour for pump priming the economy has been growing to ride over the economic slowdown, the ₹1.76 trillion payout by the RBI to the government has again revived the debate. Many analysts believe a precariously slow pace of tax collections in the current fiscal year may force the government to use the additional ₹58,000 crore received this year above the budget estimate to meet the fiscal deficit target of 3.3% of GDP in 2019-20. However, a dip in GDP growth may further put pressure on the government to announce a stimulus package. So far, Sitharaman has maintained that she has not decided how to spend the payout from RBI though on Thursday she said government will frontload capital expenditure in the current financial year.

RBI Policy Rate:

The central bank under governor Shaktikanta Das has reduced policy rates for four consecutive times in bi-monthly monetary policy reviews, with an unorthodox 35 basis points rate cut earlier this month. While on Thursday, RBI in its annual report said reviving consumption and private investment demand have assumed the highest priority in 2019-20, signaling more rate cuts could be on the anvil, a further slip in GDP growth in June quarter may lead to demands for rate cut by at least 50 basis points or more in its next policy review in October.

Growth projections for FY20:

The RBI has 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 have estimated growth rate between 6.5-7% for 2019-20, Moody’s has pegged GDP growth at 6.4% for the same financial year. Further dip in GDP growth in June quarter could lead to more downward revisions in full year growth projections by forecasters.