India GDP Growth Crashes To Six-Year Low Of 5% In April-June Quarter
A man takes rests on a roadside sugercane juice cart in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  

India GDP Growth Crashes To Six-Year Low Of 5% In April-June Quarter

The Indian economy continued to slow down in the April-June quarter, as private consumption in the economy weakened further.

Gross domestic product rose by 5 percent in the first quarter of 2019-20 compared to 5.8 percent in the previous quarter, showed data released by the Central Statistics Office on Friday. In gross value added terms, the economy grew at 4.9 percent in the April-June period, compared to 5.7 percent last quarter.

A Bloomberg poll of 39 economists had estimated first-quarter GDP growth at 5.7 percent. GVA was estimated at 5.5 percent, according to a poll of 27 economists.

At 5 percent, GDP growth is the lowest since the fourth quarter of FY13, when it fell to 4.3 percent. It is also the first time since then that India has recorded two consecutive quarters of sub 6 percent growth.

With inflation and real growth remaining low, nominal GDP growth fell to 8 percent in the first quarter of FY20, the lowest in nearly a decade.

The Government is alive to the situation, said chief economic adviser Krishnamurthy Subramanian, commenting on the fall in GDP growth. Among other factors, the pressure emerging from global growth and trade tensions have added to the growth weakness, he said, adding that some green shoots have emerged as seen in the pick-up in electricity output.

Sectoral Trends

Industrial growth was dragged down by manufacturing, mining and construction. Manufacturing growth, which also has a bearing on employment, saw growth fall to 0.6 percent. Among the services sectors, financial services saw a sharp slowdown in growth, while the trade and transport segment saw stronger growth compared to the preceding quarter.

  • Agriculture grew at 2 percent in Q1 compared to a contraction of 0.1 percent in the preceding quarter.
  • The mining and quarrying sector growth stood at 2.7 percent in Q1 compared to 4.2 percent in Q4.
  • Manufacturing grew at 0.6 percent compared to 3.1 percent in the last quarter.
  • Electricity and other public utilities grew by 8.6 percent in Q1 as against 4.3 percent last quarter.
  • Construction grew at 5.7 percent in Q1 compared to 7.1 percent in Q4.
  • Trade, hotel, transport, communication growth stood at 7.1 percent in Q1 compared to 6 percent in the previous quarter.
  • The financial services sector grew at 5.9 percent in Q1 compared to 9.5 percent in the previous quarter.
  • The public administration segment grew at 8.5 percent in Q1 as against a growth of 10.7 percent in Q4.

Expenditure Side Trends

Consumption — a bulwark for the Indian economy in recent years — saw pronounced and sharp weakness in the first quarter of the year.

While rural consumption has been weak for some time due to low wage growth, it now appears that urban consumption too is slackening. Economists conjecture that this could be because of weaker employment opportunities and lower availability of finance from non-bank lenders could be the reason behind the slowing urban consumption.

The consumption slowdown is compounding the problem of weak private investment, which persists.

  • Private consumption, reflected in private final consumption expenditure grew by 3.1 percent in Q1 compared to 7.2 percent in Q4
  • Investments, as reflected by gross fixed capital formation, grew at 4.4 percent in Q1 as against 3.6 percent in Q4.
  • Government final consumption expenditure, grew by 8.8 percent in Q1, compared to a growth of 13.1 percent in Q4.

Economists’ View

Ashima Goyal, member of the Prime Minister’s Economic Advisory Council told BloombergQuint that there has been a slowdown in availability of credit for consumer durables. That, together with the stress in the agriculture sector, has subdued consumption demand.

However, the monsoons have been good and there have been cash transfers to farmers and that should help revive consumption. You cannot say that the Indian consumption growth story has stalled because our demography remains supportive. We must wait till the festive season to see how consumption is doing. In general, this was a very uncertain quarter because elections were looming.
Ashima Goyal, Member, PMEAC

While general elections in April-May 2019 had some impact on investment growth, the collapse of private consumption demand is a real cause of concerns, said Devendra Kumar Pant, chief economist at India Ratings and Research. Consumption growth is the lowest in eighteen quarter, Pant said.

Declining savings especially household saving is a major challenge for the economy and is leading to structural growth slowdown. While the fiscal space to undertake counter cyclical measures are very limited, we believe, the government would undertake some measures to provide short-term boost to the economy.
Devendra Kumar Pant, Chief Economist, India Ratings and Research

DK Joshi, chief economist at CRISIL agreed that private consumption is the big worry. A combination of a slowdown in loans available for consumer goods and possibly weaker job growth may have impacted consumption, he said.

For any revival in private investment, you need consumption to remain strong. Capacity utilisation showed some decline in the latest reading. If consumption slows, any private investment pick-up will get pushed back. 
DK Joshi, Chief Economist, CRISIL

Joshi added that negative growth in exports in the first quarter is also a risk to keep a close eye on. Joshi said that a normal monsoon and a pick-up in monetary transmission could help growth revive to some extent.

Siddharth Sanyal, chief economist at Bandhan Bank, said that a number of key sectors like construction and financial services have weakened. There have been a number of pressure points this quarter, he said.

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