India’s economic growth slowed to a 20-quarter low of 5.8 per cent in the fourth quarter of 2018-2019, well below expectations. Growth for the full year came at 6.8 per cent, the slowest pace in the last five years, according to data released by the Central Statistics Office (CSO). While leading indicators had pointed towards sluggish economic activity, the slowdown is deeper and more entrenched than was believed, with both consumption and investment weakening. Coupled with recent data, these numbers would suggest that economic activity is likely to continue to be subdued in the first half of the current financial year as well.
Latest data shows that gross value added (GVA) grew at a mere 5.7 per cent in Q4FY19, driven by a contraction in agriculture, and slower growth of manufacturing, construction, and trade, hotels, transport and communication. Agriculture contracted by 0.1 per cent in Q4FY19, down from 2.8 per cent in the previous quarter. Part of the decline could be attributed to the base effect. The sector had grown by a 6.5 per cent in the fourth quarter of 2017-18. Much of the sector’s performance depends on how the monsoon fares this year. The IMD has predicted an average monsoon, with rainfall to be 96 per cent of the long term average, though greater clarity, especially over its distribution, will emerge in coming weeks. Manufacturing was another area of weakness, as the corporate results season has shown. The sector grew by a mere 3.1 per cent in Q4, down from 6.4 per cent in Q3. Though, on the flip side, public administration, defence and other services and financial, real estate and professional services, grew at a robust pace. The former, which largely connotes government spending, grew by a healthy 10.7 per cent in Q4, up from 7.5 per cent in Q3, presumably on account of higher spending by state governments.
On the expenditure side of the data, private final consumption expenditure, which is largely household demand, slowed down to 7.2 per cent in Q4, from 8.1 per cent in Q3, in line with the trends suggested by leading indicators. The twin balance sheet problem continues to drag down fresh investments, with gross fixed capital formation, which connotes investments, slowing to 3.6 per cent in Q4, down from 11.7 per cent in Q3. With the underlying drivers of growth sputtering, the new finance minister has an unenviable task ahead.
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