Economic Survey expects business cycle to begin improving from second half of FY21

The Economic Survey has stated that there should be a revival in growth in the second half of 2019-20.

The explanation for this assumption is that up-cycles in India’s GDP growth take 13 quarters, while down-cycles take nine quarters. The survey points that since 2011-12, India’s GDP growth hit its lowest quarterly GDP growth in the fourth quarter of 2012-13, at 4 per cent. There was a gradual growth thereafter and, after 13 quarters, the economic growth increased to 9.4 per cent by the first quarter of 2016-17.

After another 13 quarters, the economic growth has once again skid to 4.5 per cent in the second quarter of 2019-20. This shows that the length of a typical business cycle in India is 13 quarters and growth can bottom at these levels.

A study on business cycle measurement since 1996 by Pandey

et al in 2018 indicates that when GDP is accelerating, the business cycle on average is 12 quarters but, in a deceleration phase, the business cycle on an average falls to nine quarters.

"A resurgence in growth is, accordingly, expected to begin in H2 of 2019-20," the survey states.

This surmise ties in with the study of financial cycles in the RBI working paper, ‘Does financial cycle exist in India?’ by Harendra Behera and Saurabh Sharma. With the help of quarterly data on credit, equity prices, house prices and real exchange rate, the paper indicated that the trough of the financial cycle that has been contracting since the 2008 peak is being formed now.

While the growth could remain bleak for a few more quarters, it could plateau here for a few quarters, after which, there could be a recovery.