Despite GDP Downfall In Q2 Of FY20, Rating Agency ICRA Says There's Ray Of Hope For Economy

India's growth rate is expected to fall further in the second quarter of FY 2020 fiscal on the backdrop of deteriorating momentum in the industry, even as the agriculture and services industry may continue growth posted in the first quarter.

Heavy rainfall, along with delayed monsoon withdrawal negatively impacted mining and construction activity. (Representative Image/ Getty)

New Delhi: India's growth rate is expected to fall further in the second quarter of FY 2020 fiscal on the backdrop of deteriorating momentum in the industry, even as the agriculture and services industry may continue growth posted in the first quarter. According to a report by ratings agency ICRA India's growth rate is expected to further slowdown to 4.7 per cent in Q2 FY2020, due to weak industrial output. A further deterioration in the growth rate of India's Gross Domestic Product (GDP) and the Gross Value Added (GVA) at basic prices in year-on-year terms to 4.7 per cent and 4.5 per cent, respectively, in Q2 FY2020, from 5 per cent and 4.9 per cent, respectively, in Q1 FY2020. However, sectors such as agriculture and services may be able to "maintain the growth rate recorded in Q1 FY2020", the report added. "With subdued domestic demand, investment activity, and non-oil merchandise exports weighing upon volume expansion, manufacturing growth is expected to decelerate further from the marginal 0.6 per cent in Q1 FY2020," said ICRA's Principal Economist Aditi Nayar told news agency IANS. "To some extent, lower raw material costs would bolster earnings, and may prevent manufacturing GVA from slipping into a YoY contraction in Q2 FY2020," she said. The report by rating agency also highlight that heavy rainfall, along with delayed monsoon withdrawal negatively impacted mining and construction activity. "A sharp pickup in spending by the government in Q2FY20 after the budget and improved profitability metrics revealed by the earnings of some banks would support service sector growth," Aditi Nayar also noted. Earlier this month, International credit rating agency Moody’s Investors Service on Thursday lowered India's projected Gross Domestic Product (GDP) growth rate to 5.6 per cent for 2019-2020 fiscal, saying GDP slowdown in the country is lasting longer than previously expected. The credit rating major also stated that the slip in growth projection were due to subdued consumer demand, along with sluggish liquidity supply. Accordingly, the ratings agency revised downwards its growth forecast for India to 5.6 per cent in 2019, from 7.4 per cent in 2018. "We expect economic activity to pick up in 2020 and 2021 to 6.6 per cent and 6.7 per cent, respectively, but the pace to remain lower than in the recent past," news agency IANS had quoted the ratings agency as saying in Global Macro Outlook 2020-21. "India's economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8 per cent to 5 per cent in the second quarter of 2019 and joblessness rising," it had said adding that the current slowdown consumption demand has 'cooled' notably. Some time back, Moody's had changed the outlook on the Government of India's sovereign ratings to 'negative' from 'stable' and affirmed the Baa2 foreign-currency and local currency long-term issuer ratings. Even the International Monetary Fund (IMF), in October lowered India's GDP growth forecast to 6.1 per cent in 2019 and 7 per cent in 2020. However, IMF also clarified that the country still retain its position as the fastest-growing major economy of the world, sharing spot with China.