Growth slumps to 5% in Q1, a 6-year low

India’s economy grew at 5% in April-June period, as sluggish growth in the farm sector, construction and manufacturing, which expanded less than 1%, dragged the GDP to its lowest pace in six years.

But what might prompt the government to accelerate its policy levers was a near collapse of private consumption expenditure, the mainstay of India’s economy, that grew 3.1% compared to 7.2% a year ago.

Private consumption is the goods and services consumed by households and smaller companies. A persistent slowdown in private consumption expenditure has been the result of multi-year low household savings.

The slowdown in sales of cars and other consumer goods has been indicating a dent in private consumption for a close to a year.

The official data released on Friday showed that investment demand, too, remained lacklustre and only government expenditure, which increased 8.8%, provided support to overall growth.

The manufacturing sector grew at 0.6% in the first quarter (April-June) of the current fiscal compared to 12.1% in the same period a year ago. Similarly, the construction sector slowed to 5.7% in April-June period from 9.6% a year ago. This could be due to a slowdown in the construction activity carried out by the government during the Lok Sabha elections in April and May.

The growth in the agriculture sector, the largest employer, fell to 2% in the period under review from 5.1% in the same period last year.

But mining sector growth climbed to 2.7% compared to 0.4% last year.

“The unfavourable temporal and spatial spread of the monsoon rains may affect Kharif yields and further dampen rural sentiment in the second half of 2019,” said Aditi Nayar, principal economist, ICRA.

The government, which announced the second tranche of reform measures a little before the growth numbers were out, said the slowdown was largely due to global headwinds and trade war.

“Quarterly 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,” Chief Economic Adviser K V Subramanian said.

He said the government would not deviate from its fiscal consolidation path, implying that any short term fiscal stimulus was ruled out.

Few economists agreed with Subramanian and instead suggested measures for a short-term boost to the economy.

“While the fiscal space to undertake counter-cyclical measures are very limited, we believe the government would undertake some measures to provide a short-term boost to the economy,” Devendra Pant of India Rating and Research said.