India's Q2 growth likely to drop to 5%, say experts

New Delhi: The country’s second quarter growth rate is likely to drop to a nearly three and half year low of 5.1 percent owing to sustained weakness in the industrial sector, reports said.

According to a research report by Karvy Stock Broking, “the GDP growth for the second quarter of this fiscal is estimated to drop to nearly three and a half year low of 5.1 percent..”. This is mainly expected to be driven by sluggish growth in electricity generation and sharp drop in trade sector’s growth as compared to last year, it said.

[caption id=“attachment_537165” align=“alignleft” width=“380”]  India had been growing around 8-9 percent before the global financial meltdown of 2008. AFP[/caption]

Echoing similar sentiments another domestic brokerage firm Religare said :“We expect Q2 GDP at 5.1 percent, the lowest since March 2009, largely driven by sustained weakness in the industrial sector where we expect muted growth of 0.4 percent”.

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India had been growing around 8-9 percent before the global financial meltdown of 2008. The growth rate in 2011-12 slipped to a nine-year low of 6.5 percent and in the quarter ended June 30, 2012, the economy grew by 5.5 percent.

The government expects the economy to expand by 5.5-6 percent this fiscal. Interestingly, while growth rates are expected to slow down, inflationary pressures are likely to get fueled by festive demand and relatively low base.

“While growth is slowing down, we don’t expect inflation to sustain at sub-7.5 percent levels over the coming months..,” the Religare report said. The WPI Inflation declined marginally to 7.45 percent in October, from 7.81 per cent in September but was way above the RBI’s comfort zone of 5-5.5 percent.

The RBI is likely to press the pause button in its December meeting but may cut rates by January 2013. “Overall, we maintain expectations of a 50 basis points cut by March 2013,” Religare said in a research note.

The Karvy report further said that GDP estimate for FY13 is 5.3 percent which is on back of further weakness in the Services sector. “Services sector is estimated to grow by 6.4 percent as compared to 8.9 percent growth in FY12. Due to sluggish demand for exports, trade sector is expected to weigh heavily on performance in Services sector,” the report said.

PTI