India GDP: India braces For A shock

Prime Minister Narendra Modi is expending all the options and taking bolder steps to reverse the economic decline that has hit the country. The culmination of several months of downbeat figures, from dropping car sales to declining factory output and export, will likely be visible in an economy report due on Friday. This data will show the economy’s weak performance last quarter, weakest in more than six years, with the growth rate dropping below the 5% mark.

In the last few months, the government has been cutting corporate taxes, setting up special real-estate funds, merging banks along with an announcement about the biggest privatization drive in a decade. While authorities are committed to doing more, they may be running out of options. “Domestic demand is displaying chronic weakness, with an apparent credit crunch afflicting wide swaths of the economy,” said Taimur Baig, chief economist at DBS Group Holdings Ltd. in Singapore. “Production and sales are under pressure, and public spending is running out of room due to poor tax collection.”

Friday’s data will probably show gross domestic product growth of about 4.5% in the July-September period from a year ago, according to 41 economists surveyed by Bloomberg. That would be the slowest pace since the March quarter of 2013.

India was the world’s fastest-growing economy until last year, with quarterly growth rates as high as 9.4% in 2016. “The nature of the slowdown is broad-based, with consumption, as well as investment-oriented sectors, feeling the pain,” said Indranil Pan, chief economist at IDFC First Bank Ltd. in Mumbai. “Continuing poor domestic sentiment along with the lack of any demand uptake globally would ensure that any recovery process would only be gradual.” The weak growth outlook and interest-rate cuts are weighing on the rupee, the worst-performing currency in emerging Asia this quarter.

Bloomberg’s Economists expect GDP growth to pick up in the current quarter due to a low base last year, and anticipate a genuine turnaround in early 2020, with the rural economy showing early signs of recovery.

Finance Minister Nirmala Sitharaman has ensured that she would take additional steps to support the economy if the need arises. She has posted several times about the economy on Twitter, saying macroeconomic fundamentals are strong.

“It’s a deep cyclical slowdown that the economy has gone into,” Chetan Ahya, chief economist at Morgan Stanley, said in an interview with Bloomberg Television. The economy has been hit by several shocks in recent years — from the taper tantrum in 2013 to demonetization in 2016 and this year’s trade war-making a strong rebound difficult,” he said.

“As the global recovery comes through, India’s economy will be on the map finally,” he said.