Slowdown is here! GDP growth falls sharply to 5% in Q1

Slowdown is here! GDP growth falls sharply to 5% in Q1

In yet another indicator of economic slowdown, India's GDP fell to six-year low at 5 per cent in Q1 of FY20, due to a sharp dip in the manufacturing sector. The growth rate was 5.8 per cent in the last quarter of FY19.

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, the government data showed. GDP growth stood at 8% a year ago, government data showed on Friday.

The last time GDP growth was lower than this was way back in Q4 of 2012-13, when it stood at 4.3 per cent. This is also a worst start to a financial year in past seven years.

The fall in the GDP growth has mostly emancipated from the fact that consumption in the economy has been going down drastically in the recent past.

Manufacturing sector saw the gross value added dip to 5.7 per cent from 7.1 per cent. While manufacturing output growth muted to 0.6 per cent compared to 12.1 per cent a year ago.

The growth of organised sector (which has a share of more than 75 per cent in the manufacturing sector) is estimated from available data of listed companies with BSE and NSE, while the quasi-corporate and unorganised segment (which has a share of more than 20 per cent in the manufacturing sector) has been estimated using IIP of Manufacturing.

IIP Manufacturing registered growth rate of 3.2 per cent during Q1 of 2019-20 as compared with 5.1 per cent during Q1 of 2018-19.

The GDP growth numbers were released after Finance Minister Nirmala Sitharaman announced a mega PSU banks merger plan, amalgamating 10 state-run banks into four entities. 

Earlier this week, Moody's Investors Service said that even though the raft of measures announced by the government to boost the sagging economic growth will provide some support to investor and business sentiments, but domestic and external headwinds will continue to persist through the year. This will result in a 6.4 per cent GDP growth for FY20, Moody's Investors Service said on Monday.

Commenting on the measures announced by Finance Minister last week, William Foster, Vice President, Sovereign Risk Group, Moody's Investors Service said GDP growth rate will pick up next fiscal year to 6.8 per cent.

The measures announced, including an offer of tax incentives and some reforms across a variety of sectors, were an effort to stimulate slowing economic growth, he said.

"We expect the measures to provide some support to investor and business sentiment, and the acceleration of the capitalization of public sector banks to help improve the provision of credit and transmission of monetary policy easing," he said.

"However, we also expect domestic and external headwinds to persist over the course of the year, resulting in 6.4 per cent real GDP growth in the fiscal year ending in March 2020, before growth picks up to 6.8 per cent next year."

Moody's had last year lowered India's GDP growth forecast for the 2019 calendar year to 6.2 per cent from the previous forecast of 6.8 per cent.

India's economic growth momentum has been slipping since the last 3-4 quarters. Not only did GDP growth fall to a 20-quarter low of 5.8 per cent in January-March, leading indicators point towards further weakening of growth momentum to about 5.5 per cent in Q1 (April-June) 2019-20, said Shubhada Rao, Chief Economist, Yes Bank.

"While there is some degree of inevitability in the current phase of domestic growth slowdown on account of weakening of global growth impulses, the impact appears to have been accentuated by few domestic factors," Rao said.

While the telltale signs of distress emanated from the rural part of the economy, sectors like NBFCs, automobile, real estate, and FMCG had started to come under pressure.

Given this subdued backdrop, the Finance Minister's announcement of comprehensive steps to revive economic growth is most welcome, Rao said, adding this timely policy intervention (ahead of the upcoming festive season) should help in breaking the vicious circle of subdued sentiment leading to weak economic growth, and vice versa.

The decision to provide tax relief for foreign portfolio investors (FPIs) and start-ups, coupled with targeted steps for the automobile sector should help in reviving demand conditions.

The most important announcement made by the Finance Minister was the front-loading of budgeted recapitalization amount for PSU banks (Rs 70,000 crore) in 2019-20 along with the time-bound release of GST refunds for MSMEs.

The measures, Rao said, should help in boosting the credit multiplier with a lag, thereby uplifting formal economic transactions and the concomitant tax revenue collections.

(With PTI inputs)

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