India's GDP to shrink further in Q3; FY20 growth to be around 4.5%: Motilal Oswal

Motilal Oswal, in its latest report, has said India's real GDP growth would weaken further in Q3 of the financial year due to slow economic activity in the first two months of the second half. The GDP for FY20 could be around 4.5 per cent, the report said.

In its Economic Activity Index (EAI) report, Motilal Oswal says India's real GVA (Gross Value Added) suggests economic growth improved in November 2019 to 5 per cent YoY compared to October when it was at an all-time low of 1.8 per cent.

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GDP also grew at a four-month high of 6.1 per cent YoY in November 2019 against 5 per cent YoY in October over a lower decline in investments. Consumption activity, on the other hand, posted decent growth of 6.4 per cent, supported by fiscal spending, passenger traffic and fuel consumption.

While GVA growth improved, the report said the economy was still not out of bounds and showed no sign of recovery in the first two halves of the fiscal year. "Thus, only if economic activity grows much faster in Dec'19 (which seems unlikely), will the real GDP growth in 3QFY20 be similar to that in 2QFY20," it adds.

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Ruling out expectations of higher than 4.5 per cent growth in Q3 FY20, the report says the real GDP growth could shrink further toward 4 per cent in the third quarter. "Real GVA/GDP growth, thus, could be closer to 4.5% in FY20 as compared to 6.8% in FY19," it said.

India's GDP grew at 6.81 per cent in FY19. In September quarter of this fiscal, the GDP growth slipped further to an over six-year low of 4.5 per cent, largely impacted by a slump in manufacturing output. The last time India witnessed a GDP growth of less than 5 per cent was in the fourth quarter of FY13 when it grew at 4.3 per cent. The economic growth moderated from 5 per cent in the April-June quarter and 7 per cent in the July-September quarter of 2018.

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Fitch Ratings has also cut its growth forecast for India to 4.6 per cent for the 2019-20 fiscal from the previous estimation of 5.6 per cent after factoring in significant deceleration in past few quarters due to credit squeeze and deterioration in business and consumer confidence.

Edited by Manoj Sharma

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