India's slowdown deepens, coronavirus may be an added risk

India's slowdown deepened with the economy sliding to more than six-year low of 4.7% in the October-December period on the back of a contraction in manufacturing sector, electricity and other public utility services.

Official data showed private investment improved from the previous quarter but investment remained laggard and much of the momentum to the economy was provided by the government expenditure.

The agriculture sector also logged a growth of 3.5% in December quarter, up from 2.1% earlier and services continued to be the main driver.

Economists and experts, however, feared the gains from farm sector could be offset by a rapid spread of China-born coronavirus and the next three months could even be worse for global growth, including that of India.

She, however, said that things may get challenging if the issue (corona) prolonged for another two or three weeks.

The growth for the December quarter was the lowest since January-March of 2012-13, when it stood at 4.3%.

The only shot in the arm was an upward revision in the growth numbers of previous three months (July-September) to 5.1% from a low of 4.5%

Analysts also saw risk to economic growth in the January-March quarter coming from the current expenditure compression by the government in the wake of a marked slowdown in revenues. The economic growth has been majorly supported by the government spends in the past 6-9 months.

“The coronavirus remains the critical risk as India depends on China for both demand and supply of inputs. The case for an early rate cut despite adverse inflation optics remains and, globally central banks might have to go in for aggressive monetary easing to offset a pandemic-led recession,” said Abheek Barua, Chief Economist of HDFC Bank.

The previous quarters' data showed a consistent fall in manufacturing, especially capital goods and construction.

“At present, it is difficult to conclude whether the risks arising from the rapid spread of the coronavirus for domestic tourism, trade and manufacturing, would outweigh the improved outlook for the agricultural sector and rural spending, engendered by the encouraging outlook for the rabi crop,” Aditi Nayar of ICRA said.

Rubbing salt to the wound, India's fiscal deficit in April-January (2019-20) came at Rs 9.85 lakh crore or 128.5% of the revised budgeted target for the current financial year. Net tax receipts were Rs 9.98 lakh crore, while total government expenditure was Rs 22.68 lakh crore.

The fiscal deficit is the gap between the government's income and its expenditure.