Mounting anxiety over the prospect of a slowdown in growth coinciding with a disappointing second quarter for corporate earnings and a decline in urban consumption are causing concerns in top government quarters.

Research agencies estimate that the growth has most likely slowed during the July-September quarter (Q2) of the current fiscal, with official data set to be released on November 29. On Wednesday, ICRA projected the GDP growth declining to 6.5 per cent in Q2 from 6.7 per cent in the April-June quarter. Earlier, the SBI research report also pegged its estimate at 6.5 per cent, while the RBI’s October bulletin had projected 6.8 per cent growth rate.

Dull Q2 for India Inc

The growth slowdown is also reflected in the second quarter performance of corporates. A report by Motilal Oswal Financial Services showed that Nifty 50 companies posted only 4 per cent growth in Q2, with commodities dragging down earnings.

Simultaneously, a Finance Ministry report highlighted a dip in urban consumption. Economists, however, recommend different policy prescriptions.

Govt capex down

DK Srivastava, Chief Policy Advisor at EY India, said the main reason for the growth slowdown is the contraction in the Centre’s capital expenditure at (-)15.4 per cent during April-September and advocated both fiscal policy action in the form of accelerated government expenditure and monetary policy action, which may be delayed beyond December.

Rumki Majumdar, Economist at Deloitte India, felt that higher interest rates might temper consumption temporarily, but persistent inflation builds expectations of rising prices, eroding confidence and curbing spending in the long run.

Devendra Kumar Pant, Chief Economist with India Ratings & Research, said despite the decline in the risk-free (10-year G-Sec) rate and easing of banking sector liquidity, banks’ lending rates are high. He said that while the impact of interest rate on consumption is weak, it is strong for real wage and consumption growth.

“The desirable combination is 100 bps decline in inflation with the same nominal wage,” he said.