A five-quarter low is what the expectation is. Do you think that the global slowdown in any way or even elections have played a spoiled sport.
Sonal Varma: I think not the global slowdown impact. There are three different factors I would say that are playing a role. So, our own expectation is GDP growth at around 6.8%. One is actually just adverse base effects are at play which is more technical. There are two what we would call transitory factors that are weighing on growth. One is the election related low spending because of the code of conduct. And second there was a heatwave actually and that did dampen consumption in that particular quarter.But I think there are also a few factors that may be more persistent which are also reflected in this softer number. One is the lower commodity prices which were a big tailwind for firms in terms of high corporate profitability that is starting to reverse, so that is going to reflect in this number.
And two and this is something that we think is going to play out further in the coming quarters is a slowdown in credit growth which we think is going to weigh on the GVA number for the financial services sector. So, it is a mix of many factors, I would say some transitory, some not so transitory and so the key takeaway for us really is going to be to what extent some of these trends are going to extend beyond Q1.
What is the figure that you are working with and I ask because while the ET Now poll is pencilling in a figure of 6.9%, there are estimates out there on the street as low as 6% as well for the quarter and all this comes just a day after Moody’s actually boosting the GDP forecast to 7.25% although that is for the full year.
Sonal Varma: So, our own estimate is 6.8% for GDP growth and we have seen in the last two-three quarters a big variance actually between GDP growth and GVA growth. One is sort of from the demand side, the other is from the supply side. And we do think the GVA growth is going to continue to be much softer than what the GDP numbers are.
So, compared to the GDP number our GVA growth estimate is around 6.1%, but we would be surprised if the GDP number is closer to 6%. I think that is something that the GVA might be, but GDP we think should be closer to a 7%.
And do you sense that this is going to resurrect in the next quarter as the government spending starts to trickle back or do you think it will continue to be on the lower end and continue to weigh heavy on the GVA and the GDP numbers?
Sonal Varma: Broadly speaking the transitory factors of course will reverse. So, government spending is going to pick up, heatwaves going to get over so consumption should normalise. But the factors that are a bit more longer lasting in our view is the moderation in corporate profitability, the moderation in consumer credit which we do think is going to weigh on urban consumption demand and partly offset the revival we are seeing on the rural consumption side.
The global factors I think is the biggest risk factor to watch over the next 6 to 12 months. We have seen some shake in terms of the US employment situation. As of now it still looks a moderation rather than a big slowdown in US growth, but that could potentially be something of a risk we need to monitor.
So, our own assessment for FY25 is GDP growth is likely to moderate. We are looking at around 6.9% for the full financial year FY25 and at the margin I would say like FY25, the second half of FY25 we think will be slightly softer as some of these more persistent components of growth start to play a bigger role.
What the outlook or the expectation is when it comes to rural recovery? Do you think that that is on track?
Sonal Varma: There is an improvement that is visible in rural segments and we think that is largely because of the decline in inflation which is helping boost real rural incomes and of course the progress on monsoon should help as well. That said, I think some of the most structural drivers of rural incomes historically like a revival in rural job creation, significant increase in land prices, factors that lift rural terms of trade, we do not think some of those factors are at play as of now. So, bottom line is yes, there is a rural recovery but it is still relatively subdued I would say compared to what we are used to in the past 10 years.
What is the expectation then going down the line in terms of the GDP growth print and how we will stack up versus some of the other emerging market economies?
Sonal Varma: You are right, so as I mentioned our projection for this financial year is 6.9% and for FY26 our projection at this stage is around 7% although we see some downside risk to that. I think in the global EM context India still looks quite strong in terms of the relative growth prospects, but I think also importantly in terms of the macro fundamentals. So, if we do see a US soft landing, then that could actually be a positive for India in terms of an economy that shows strong growth with solid fundamentals. So, still looking good on a relative basis I would say, but on an absolute basis some moderation is on the cards.