Economy will remain below potential, ample scope for a rate cut: Economist DK Joshi

DK Joshi Chief Economist at Crisil told CNBC-TV18: "We were expecting a troughing out. The third quarter would be better than the second quarter but this is a very mild recovery so to say. I think on some accounts I think the picture continues to remain hazy because I think if you look at the auto sector or the exports, the growth is still negative although the pace of deceleration is coming down."

India, which till recently was hailed as the world's fastest-growing major economy, has seen the growth rate decline to a six-year low of 4.5 percent in the September quarter of 2019-20. This has largely been attributed to the slowdown in investment that has now broadened into consumption, driven by financial stress among rural households and weak job creation.

On an expected interest rate cut DK Joshi told CNBC-TV18: "The economy will still remain below potential, so there would be ample scope for a rate cut. Even if there is a supply shock in some of the sectors, it is not going to morph into generalised inflation because the demand still is quite weak."

Joshi also hinted that India will achieve 5.1 percent GDP growth in 2020. "Our GDP growth expectation for the full year is 5.1 percent and second half is 5.5 percent. With the third quarter, which is the December quarter, GDP growth should be close to 5 percent," Joshi told CNBC-TV18.

But a well-known American economist Steve Hanke has hinted that India will "struggle" to achieve 5 per cent GDP growth in 2020 as the significant deceleration in past few quarters was largely owing to credit squeeze which is a cyclical problem.

Hanke, who currently teaches applied economics at Johns Hopkins University (USA), pointed out that India experienced an unsustainable credit boom, and now the chickens are coming to roost with a massive pile of non-performing loans piled up, primarily at the state-owned banks.

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