Growth drops to 7.1% in Q2 amid decline in demand

India’s economy lost steam in the July-September quarter with its growth falling to 7.1% compared to 8.2% in the previous quarter, impacted by a slowdown in employment generating sectors like construction and mining.

The government said the growth numbers were disappointing but was quick to add that the deceleration was related to monsoon months, implying they would correct in the quarters ahead once the impact of monsoon was over.

“GDP growth for second quarter 2018-19 at 7.1% seems disappointing. Manufacturing growth at 7.4% and agriculture growth at 3.8% are steady. Construction at 6.8% and mining at -2.4% reflect monsoon months deceleration. Half-year growth at 7.4% is still quite robust and healthy,” Economic Affairs Secretary Subhash Garg said.

Construction and mining in India are typically slow during monsoon months leading to a dip in demand for cement, steel, electricity and others.

The data showed manufacturing and agriculture sectors, however, grew better than last year at 7.4% and 3.8%, respectively. Last year, in the same period, manufacturing had grown at 7.1% and agriculture 2.6%. Analysts, however, saw a demand slowdown reflecting itself in the poor economic growth numbers and feared the government would speed up spending to boost consumption in an election year even at the risk of running a high fiscal deficit.

The data showed private consumption growth declined to 7% in the July-September quarter from 8.6% in April-June. Another data point showed the Centre’s fiscal deficit or the gap between its expenditure and revenues had already overshot the full year target for fiscal 2019.

Indian Rating and Reasearch, a Fitch Group company, said a sudden spurt in crude oil prices and depreciation in rupee had a somewhat destabilising impact on the economy in the past months.

It also expected the Reserve Bank of India to keep the policy rate unchanged in its review on December 5 and said if the current trend of growth inflation mix continued, rate hike in the current fiscal was ruled out.
Public administration, defence and other services grew 10.9% in the quarter under review, higher than 6.1% a year ago.

The latest data comes close on the heels of the government releasing the back-series GDP data from 2004, which reversed all the growth numbers during 10 years of UPA rule from 2004 to 2014. The revision put the current NDA regime in good light over UPA’s.