India Q4 GDP: Growth Falls To 3.1% As Covid Pain Begins
Workers labor on the pillars and cap of an elevated highway of the National Highway 24 road widening and bypass project near the Indirapuram township in Ghaziabad, Uttar Pradesh, India. (Photographer: T. Narayan/Bloomberg)

India Q4 GDP: Growth Falls To 3.1% As Covid Pain Begins

Growth in the Indian economy slowed sharply in the January-March period, hurt by the global and local spread of the Covid-19 virus. The impact of local disruptions caused by the novel coronavirus is partially captured in the data for the fourth quarter of 2019-20 as a nationwide lockdown was announced only on March 24.

India’s gross domestic product rose by 3.1% in the fourth quarter of FY20 compared to 4.1% in the preceding three months, showed data released by the Central Statistics Office on Friday. In gross value added terms, the economy grew by 3% in the fourth quarter compared to 4.5% in the previous quarter.

A Bloomberg poll of 36 economists had estimated fourth quarter GDP growth at 1.6%. GVA was pegged at 1.8% according to 22 economists.

At 3.1%, quarterly GDP growth is at its lowest since the fourth quarter of FY09.

The data released by the statistics ministry also suffers from inadequate information, it said in its release. In particular, statutory time-lines for submitting financial returns have been extended by the government impacting the computation of quarterly data, the statistical department said.

In addition to the release of the Q4 data, the government has also revised data for previous quarters downwards.

  • GDP growth for Q1 FY20 was revised to 5.2% from 5.6%
  • GDP qrowth for Q2 FY20 was revised to 4.4% from 5.1%
  • GDP growth for Q3 FY20 was revised to 4.1% from 4.7%

The material downward revisions in historical GDP numbers for FY20 show that the economy was already much weaker than numbers exhibited initially, and the Covid-19 outbreak will likely create material damage to an already fragile economic set up, said Rahul Bajoria, chief India economist at Barclays.

Annual GDP Growth

For the full financial year, GDP growth settled at 4.2% after growing by 6.1% in FY19. GVA growth for FY20 was at 3.9% compared to 6 percent last year.

Nominal GDP growth fell to 7.2% in FY20 compared to 11% last year. Per capita income for FY20 is estimated at Rs 94,954 as compared to Rs 92,085 in the year 2018-19, an increase of 3.1%.

Expenditure Trends

The fourth quarter of FY20 provided a hint of the impact that Covid-19 would have on private consumption, where growth fell sharply. Private investment activity in the economy remained weak. The support from government spending continued to aid the economy.

  • Private consumption, reflected in private final consumption expenditure, rose 2.7% in fourth quarter compared to 6.6% in third quarter. For the full year, private consumption grew 5.3% compared to 7.15% in 2018-19.
  • Investments, as reflected by gross fixed capital formation, contracted by 6.5% in fourth quarter after a contraction of 5.2% in the previous quarter. In 2019-20, investments contracted 2.8% compared to a 9.8% growth in the previous financial year.
  • Government final consumption expenditure grew 13.6% in fourth quarter after growing 13.4% in third quarter. For 2019-20, government expenditure rose 11.75% compared to 10.1% a year ago.
Expenditure side depicted a broad-based slowdown, said Bajoria. Domestic demand overall grew by only 0.7% year-on-year, the weakest since the global financial crisis, he added.

Industry Trends

Among key sectors, agriculture and mining remained strong. As such, growth excluding agriculture was weaker than the headline data suggested. Sectors such as manufacturing, construction and trade weakened, likely in response to the early impact of physical distancing.

  • Agriculture sector grew at 5.9% in fourth quarter compared to 3.6% in third quarter. The sector grew 4% for the full year compared to 2.4% in the previous fiscal.
  • The mining sector growth stood at 5.2% in fourth quarter compared to 2.2% in the previous three months. Mining grew 3.1% in 2019-20 against a contraction of 5.8% in the previous year.
  • Manufacturing contracted by 1.4% in fourth quarter compared to a contraction of 0.8% in the previous three-month period. For the full year, the sector grew by 0.03%, compared to 5.7% in 2018-19.
  • Construction contracted by 2.2% in fourth quarter compared to 0.04% in the preceding quarter. The sector grew by 1.3% in the full year compared to 6.1% in 2018-19.
  • Trade, hotel, transport, communication growth stood at 2.6% in fourth quarter compared to 4.3% in the previous quarter. Growth for the full year was at 3.6% from 7.7% in 2018-19.
  • The financial services sector grew at 2.4% compared to 3.3% in the previous quarter. For the full year, the sector grew by 4.6% compared to 6.8% in 2018-19.
Core GVA growth, which excludes agriculture and public administration, plummeted to 2.8% in FY20 from 6.2% in FY19, said Devendra Pant, chief economist at India Ratings & Research.

Gleaning The Impact Of Covid

The GDP data, which comes with a significant lag, gives little information on the impact that the Covid-19 crisis is having on the economy.

The fall in consumption growth is one indicator that may suggest that even before a full nationwide lockdown, consumers had started to hold back. Equally, the deepening contraction in private investment may reflect the reduced activity starting the second half of March.

Both these aspects will worsen materially in the April-June quarter when the economy was under a nationwide lockdown.

“Going forward, with private expenditure growth dwindling due to shut down and labour migration; investment demand contracting due to weak consumption demand and stretched corporate balance sheet; government expenditure will again be the growth engine in FY21,” said Pant.

The further extension of the lockdown till the end of May 2020 amid graded relaxations will further dampen economic activity, said Aditi Nayar, economist at ICRA. “We expect Indian GDP (at constant 2011-12 prices) to contract by 25.0% in Q1 FY21,” Nayar said.

Data for eight core sector industries, which was also released on Friday, showed a record 38% contraction in April. Bajoria said the data is a “precursor of things to come and indicates again that economic activity looks likely to contract by an unprecedented magnitude in April-May.”

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