India’s gross domestic product (GDP) growth rate slowed to a six-year low of 5% in the first quarter of the 2019-20 financial year, the government announced on Friday, led by a dramatic slowdown in the manufacturing sector.
The last time the GDP grew slower was in the fourth quarter (January to March) of the financial year 2012-13, according to data with the Ministry of Statistics.
It grew at 8% in the first quarter of last year. The growth of Gross Value Added (GVA) stood at 4.9% in the first quarter of the financial year 2019-20, also the slowest in six years.
“The quarterly GDP estimates show that India’s GDP growth, while high, has shown some slowdown,” Chief Economic Adviser Krishnamurthy Subramanian told reporters. “This is due to both endogenous and exogenous factors. The impact comes, especially, from global headwinds due to the deceleration in developed economies, the Sino-American trade conflict, etc.”
The data show that the manufacturing sector grew at an anaemic two-year low of 0.6% in the first quarter of 2019-20, down from 12.1% in the same quarter of the previous year. The agriculture sector also saw a dramatic slowdown in growth to 2% from 5.1% over the same period.
The plight of the real estate sector was also highlighted by the slowdown in its growth rate to 5.7% in the first quarter of this financial year, compared with 9.6% in the same quarter of 2018-19.
“The growth slowdown was led by private final consumption expenditure, which grew 3.1% only (18 quarter low),” Devendra Pant, Chief Economist, India Ratings and Research said. “Investment demand also remained lacklustre and fixed capital formation grew 4%. Only government expenditure provided support to growth and increased 8.8%.”
Mr. Subramanian, however, highlighted the robust growth in the electricity and power generation sector, of 8.6% in the quarter under consideration compared with 6.7% in the same quarter of the previous year.
“Electricity and power generation, which is a leading indicator across the world, grew by 8.6%, a good sign of green shoots towards higher growth,” he said.
“While general elections in April-May 2019 had some impact on investment growth, the collapse of private consumption demand from 10.6% in the fourth quarter of financial year 2017-18 to 3.1% in the first quarter of financial year 2019-20 is a real cause of concern,” Mr Pant added.
The government has, over the last week, announced a whole host of measures to help revive the economy, aimed at easing tax rules for foreign portfolio investors, start-ups, increasing credit outflows by the banks and NBFCs, increasing demand for the auto sector, and liberalising the foreign direct investment rules for single-brand retail.
On Friday, Finance Minister Nirmala Sitharaman also announced a slew of banking reform measures, including merging 10 banks into four entities.
“As the Economic Survey 2019 shows, investment is a critical driver of the economy with consumption being a key force multiplier,” Mr. Subramanian said. “Together with steps taken by the government for the banks and the financial sector, and structural reforms, investment should continue improving and drive economy to higher growth.”
