Weak manufacturing and consumption numbers dragged the country’s GDP growth to a 25-quarter low of 5 per cent in the first quarter (April-June) of the current fiscal, data released by National Statistical Office (NSO) Friday showed. The GDP growth rate has now slowed for the fifth consecutive quarter with the previous low recorded at 4.3 per cent in March 2013.
Besides a sub-1 per cent growth in the manufacturing sector and weak agricultural growth, the slowdown was led by a visible collapse of consumption demand, evident from the tepid 3.1 per cent growth in private final consumption expenditure — an 18-quarter low. This GDP growth contracts to 5 per cent, slowest in six years; Govt says more boosters coming comes amid global headwinds and lingering trade disputes.
Data showed that the growth has slowed down in five out of eight sectors, reflecting the widespread weakness in the overall economy.
Investment demand, too, was sluggish, with only government expenditure providing support to growth. The first quarter numbers point to the need for a sharp pickup in growth in the remaining three quarters if the targeted growth of 6.9 per cent for the current fiscal is to be achieved.
With declining household savings and lower buoyancy in government’s revenue collections, there will be limited fiscal space to spur economic growth and the monetary policy tool — through more rate cuts — could be relied on to boost growth going ahead.
The slowdown in economy is also expected to adversely affect income growth which, in turn, would futher dent consumption demand. A favourable low base effect, however, would be seen third quarter onwards, which will help push the headline growth number higher.
Growth rate of Gross Value Added (GVA), which is GDP minus net product taxes, fell below 5 per cent level to 4.9 per cent in the first quarter of this financial year as against 7.7 per cent in the corresponding period last year. Nominal GDP growth was recorded at 8.0 per cent in April-June as against 12.6 per cent last year.
In April-June, manufacturing growth slumped to 0.6 per cent as against double-digit growth of 12.1 per cent last year, while the “agriculture, forestry and fishing” sector recorded a growth rate of 2.0 per cent as against 5.1 per cent last year. GVA growth for the construction sector also slowed to 5.7 per cent in April-June from 9.6 per cent year ago.
The Reserve Bank of India, in its Annual Report for 2018-19 released on Thursday, had suggested that the recent deceleration in the economy could be in the nature of a soft patch mutating into a “cyclical downswing”, rather than a “deep structural slowdown” and that its disaggregated analysis confirmed that a broad-based cyclical downturn is underway in several sectors — manufacturing, trade, hotels, transport, communication and broadcasting, construction and agriculture.
A string of indicators, from automobile sales to rail freight, have reinforced deep drops in domestic consumption.
The slowdown is being felt beyond discretionary purchases such as vehicles and durables with fast-moving consumer goods companies manufacturing small-ticket items such as soaps, biscuits and other daily essentials
reporting a steady slide in consumer sentiment. Vehicle sales numbers in July were the worst in 19 years coming on the back of over 286 dealership outlets downing their shutters in the last 18 months and at least 15,000 job losses estimated over the last quarter. The steady slide in investment activity has been progressively intensifying — evidenced by a nearly 30 per cent drop in capital expenditure by the government in the June 2019 quarter alongside a near halving of new project announcements by India Inc.
The government had come out with several measures last week to tackle the downswing and promised more steps in the coming weeks. The package unveiled on August 23, the first of three planned stimulus packages, included a reduction of taxes, improvement of liquidity in the banking sector, increased government spending on auto and infrastructure, and accelerated refunds of goods and services tax (GST).
Economists said that although government expenditure provided some support to growth, collapse of private consumption demand is the real cause of concern.
Said Chief Economic Adviser Krishnamurthy Subramanian: “Qtly. GDP estimates show that India’s GDP growth, while high, has shown some slowdown. This is due to both endogenous and exogenous factors. Impact comes, especially, from global headwinds due to deceleration in developed economies, Sino-American trade conflict etc.”
“Similar phenomena has also been observed previously before during Q4 (2012-13) and Q4 (2013-14), when growth was around 5%. Electricity and power generation, which is a leading indicator across the world, grew by 8.6% — a good sign of green shoots towards higher growth,” he said.