The country’s Gross Domestic Product (GDP) growth rate slumped to a 27-quarter low of 4.7 per cent in October-December even as the government retained the 2019-20 forecast at 5.0 per cent, an 11-year low, in the second advance estimate released by National Statistical Office (NSO) Friday.
The slowdown in GDP growth in the third quarter was marked by tepid growth in manufacturing, electricity and construction, coupled with a contraction in investment and weak exports, the data showed.
Despite the December quarter generally being one of the strongest quarters due to the festival season uptick and higher rural spending driven by the Kharif harvest, the continued growth slowdown is seen as worrying, especially in the context of some high-frequency data sets pointing to a rebound.
Economists also warn of the downside risks due to the impact of the COVID-19, with Finance Minister Nirmala Sitharaman stating in Mumbai Friday said the outbreak could “emerge as a challenge for India” if issues were not resolved in the coming three weeks.
Barring a minor rise in Q1 GDP growth rate, the 4.7 per cent growth rate for October-December now marks a slowing rate of growth for the seventh consecutive quarter. It’s the lowest since 4.3 per cent growth in January-March 2012-13.
For this fiscal, the GDP growth rates were revised up sharply to 5.6 per cent for April-June and 5.1 per cent for July-September from earlier estimates of 5.0 per cent and 4.5 per cent, respectively. This follows the January 31 GDP release, where the growth for 2018-19 was revised down to 6.1 per cent from earlier estimate of 6.8 per cent.
With the growth rate seen at 5 per cent for the whole year, back of the envelope calculations show that the GDP growth is estimated to remain broadly flat at 4.7 per cent in the fourth quarter as well.
Both the government and the RBI see growth picking up in next financial year with the Economic Survey expecting growth rate to be 6-6.5 per cent and the Reserve Bank of India pegging it at 6 per cent. “We have already bottomed out,” Economic Affairs Secretary Atanu Chakraborty told reporters after the NSO released its data.
“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. The continued slowdown in economic growth in Q3 FY2020 suggests that the MPC may well undertake another rate cut, but only when the CPI inflation retraces considerably towards the 4 per cent mark. Therefore, we continue to expect a pause, at least in the April 2020 and June 2020 policy reviews,” said Aditi Nayar, Principal economist, ICRA Ltd.
Growth rate in terms of Gross Value Added (GVA), which is GDP minus net product taxes and reflects supply-side growth, is seen slowing to 4.9 per cent in 2019-20 from a revised 6.0 per cent growth in the previous year, while for the October-December quarter it is estimated at 4.5 per cent as against a 5.6 per cent growth in the same period last year.
The nominal GDP growth rate, which accounts for inflation, is estimated to grow at 7.5 per cent in 2019-20, lower than 11.0 per cent in the previous year.
Sector-wise breakup showed a pickup in agricultural GVA growth to 3.5 per cent in October-December from 2.0 per cent a year ago and GVA growth in “public administration, defence and other services” to 9.7 per cent in October-December from 8.1 per cent a year ago.
The sharpest fall is seen for manufacturing and electricity sectors, with a contraction of 0.2 per cent and 0.7 per cent, respectively. Even more worrying is the sharp decline in gross fixed capital formation, a proxy for investment growth, by 5.2 per cent in the October-December quarter as against 11.4 per cent rise in the year-ago period, the data showed.
Economists said though higher rural spending was expected to provide support to growth, the slowdown has continued.
“The only bright spot is private final consumption expenditure which improved to 5.9% in 3QFY20 from 5.0% in 1QFY20. However, investment demand does not show any chance of revival, fixed capital formation (GFCF) declined 5.2% in Q3 FY20 and declined 1.71 per cent in April-December,” said Devendra Kumar Pant Chief Economist, India Ratings and Research.
Separate set of data released Friday showed a 2.2 per cent growth recorded by eight core industries in January helped by expansion in the production of coal, refinery products and electricity. The infrastructure sectors had expanded by 1.5 per cent in January 2019.