GDP growth slows to over 6-year low of 5%, modest stimulus in pipeline

India's GDP growth slips to 7-year low of 5% in first quarter

New Delhi: Sharp deceleration in manufacturing output and subdued farm sector activity pulled down India's gross domestic product (GDP) growth to a more than six-year low of 5 per cent in the April-June quarter of 2019-20, according to official data released on Friday.

The gross value added (GVA) growth in the manufacturing sector tumbled to 0.6 per cent in the first quarter of this fiscal from 12.1 per cent expansion a year ago.

Similarly, farm sector GVA growth remained subdued at 2 per cent as compared to 5.1 per cent in the corresponding period of the previous fiscal.

Construction sector GVA growth too slowed to 5.7 per cent from 9.6 per cent earlier.

However, mining sector growth climbed to 2.7 per cent from 0.4 per cent a year ago.

The previous low in GDP growth was recorded at 4.9 per cent in April-June 2012-13. India's economic growth stood at 8 per cent in the same quarter of 2018-19.

"GDP at Constant (2011-12) Prices in Q1 of 2019-20 is estimated at Rs 35.85 lakh crore, as against Rs 34.14 lakh crore in Q1 of 2018-19, showing a growth rate of 5 percent," the National Statistical Office (NSO) said in a statement.

Gross Fixed Capital Formation (GFCF), which is a barometer of investment, at constant (2011-12) prices was estimated at Rs 11.66 lakh crore in the first quarter as against Rs 11.21 lakh crore a year ago.

In terms of GDP, GFCF at current and constant prices during the first quarter was estimated at 29.7 per cent and 32.5 per cent respectively, as against 30 per cent and 32.8 per cent a year ago.

The Reserve Bank had marginally lowered the GDP growth projection for 2019-20 to 6.9 per cent from 7 per cent projected earlier in the June policy, and underlined the need for addressing growth concerns by boosting aggregate demand.

The growth numbers could also prompt the Reserve Bank of India's monetary policy committee to cut interest rates by at least 25 basis points in October. So far this year, it has cut the benchmark repo rate by 110 basis points.

The central bank has shown willingness to join hands with the government to try to revive consumer demand and investments because inflation remains below its 4% medium term target for a year.

China's economic growth was 6.2 per cent in April-June quarter of 2019, which was its weakest expansion in 27 years.

Steps to revive

The government is taking steps to try to revive growth, and recently got help from the central bank, in the form of a windfall dividend of nearly $21 billion. Finance ministry officials said this provided room for "modest stimulus" despite pressure to contain the fiscal deficit.

On Friday, the government announced a series of mergers involving ten state-owned banks in a bid to reform and strengthen the banking sector, which is struggling under a mountain of debt and to boost lending.

The government this week approved 100% foreign investment in coal mining and eased rules for sectors including contract manufacturing and single-brand retail.

Finance Minister Nirmala Sitharaman has said more measures to boost the economy will be announced in coming weeks.

Prime Minister Narendra Modi's government has held several meetings with industry officials, seeking to stem the fall in auto sales, a slowdown in lending by non-bank finance companies, and revive consumer demand.

Policymakers are worried about a slowdown in consumer demand and private investments.

Many indicators – automobile sales, rail freight, petroleum product consumption, domestic air traffic and imports - signal drops in domestic consumption.

Auto sales in July tumbled 31% from a year earlier, the biggest decline in nearly two decades, resulting in the loss of hundreds of thousands of jobs.

(With inputs from Reuters)