Looking forward, though they expect the Reserve Bank of India (RBI) to cut rates up to 50 basis points in the two remaining policy meetings of the fiscal year, they said the effectiveness of rate cuts has diminished now.
Saying that the domestic slowdown is syncronised with the global slump, the State Bank of India has lowered its estimate for growth in gross domestic product (GDP) at 4.2 per cent. For the full fiscal year, it has given the lowest estimate so far, at 5 per cent.
It attributed a part of this to the slowing down of the money multiplier – rate at which money supply changes with respect to reserve money – due to de-risking of the financial system, including banks, and the rise in digital payments.
“Under the current macro environment, monetary policy seems to be less effective than the fiscal policy as low interest rate does not guarantee rise in investment demand,” said the report.
In what is suggestive of an entrenched slowdown, economists said that growth has not bottomed out yet.
“We think the economy grew at 4.5 per cent in the September quarter, and anything below 5 per cent indicates growth has not bottomed out yet,” said Madan Sabnavis, chief economist at CARE ratings.
He added that services output, too, looks bleak this time, barring the financial sector and public administration. “While credit and deposits growths are in double digits, trade, freight and air traffic would pull services down.”
Aditi Nayar, principal economist at ICRA, said the enhanced spending by the government after the Union Budget on July 5 would add up to the Q2 growth.
“Slowdown would also be associated with a few positive factors, such as lower raw material costs, a sharp pick-up in spending by the government in Q2 and improved profitability revealed by some banks,” she said.
She, too, said that trade and freight have done poorly in that period, and would pull Q2 headline numbers down.
Nomura chief economist Sonal Varma has put the Q2 growth at 4.2 per cent, similar to what SBI has estimated.
Suvodeep Rakshit, chief economist at Kotak Securities, has said the Q2 growth number would be 4.7 per cent, revising downward from his earlier estimate of 5.2 per cent. He said that it is too early to say that the economy is showing green shoots.
“While October shows some uptick in segments of auto sales, it is most probably a blip that can be attached to festive season sales. Moreover, some increase in steel and cement prices cannot be said to be indicators of demand picking up,” he told Business Standard