India’s Q1 GDP growth at 5% falls to lowest in 6 years

Severe slowdown in manufacturing activity in the country pulled India’s GDP growth rate in first quarter (Q1) ended June down to 5 per cent, marking the fourth successive quarter of decline in growth on the trot.

From 8 per cent during Q1 of 2018-19 to 5 per cent in this quarter, the GDP has fallen by three per cent in barely a year.

On a sequential basis, the growth rate came lower than the 5.8 per cent in Q4 of 2018-19.

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The GDP growth figures came on the day when the government went on overdrive to prop-up growth by announcing a mega merger of public sector banks (PSBs). Finance Minister Nirmala Sitharaman has been announcing a slew of growth-inducing measures in the recent days.

Currently, a culmination of factors such as high GST rates, natural calamities, subdued farm produce prices, stagnant income levels and low job generation have led to the slowdown.

Various sectors are facing a sales downturn. Industries such as fast-moving-consumer goods (FMCG) and automobiles have been the hardest hit.

Commenting on the GDP figures, Chief Economic Advisor Krishnamurthy Subramanian admitted there is “some slowdown” as global headwinds and trade wars contribute to the slackness, and expressed hope that investment would pick up in the coming quarters.

“Investment drives our economy while consumption is a force multiplier. We expect investment to pick up in the coming quarters”, he said. 

According to National Statistical Office (NSO), the 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, showing a growth rate of 5 per cent. 

Besides the data showed that Gross Value Added (GVA) growth rate during the first quarter of 2019-20 on a YoY basis fell to 4.9 per cent, from 7.7 per cent during the like period of the previous fiscal.

The GVA includes taxes, but excludes subsidies.

“GVA at ‘Basic Price at Constant (2011-12) Prices’ for Q1 of 2019-20 is estimated at Rs 33.48 lakh crore, as against Rs 31.90 lakh crore in Q1 of 2018-19, showing a growth rate of 4.9 per cent over the corresponding quarter of previous year,” the NSO said in a statement.

“The economic activities which registered growth of over 7 per cent in Q1 of 2019-20 over Q1 of 2018-19 are ‘electricity, gas, water supply and other utility services’, ‘trade, hotels, transport, communication and services related to broadcasting’ and ‘public administration, defence and other services’.”

“The growth in the ‘agriculture, forestry and fishing’, ‘mining and quarrying’, ‘manufacturing’, ‘construction’ and ‘financial, real estate and professional services’ is estimated to be 2 per cent, 2.7 per cent, 0.6 per cent, 5.7 per cent, and 5.9 per cent, respectively, during this period.”

On a year-on-year (YoY) basis, Q1 GVA for 2019-20 from the agriculture, forestry and fishing sector showed a growth of 2 per cent, against 5.1 per cent in the same quarter of 2018-19.

The GVA in Q1 2019-20 from the manufacturing sector grew at 0.6 per cent, as compared to 12.1 per cent in the corresponding quarter of the previous fiscal.

Similarly, the mining and quarrying sector grew by 2.7 per cent against previous year’s growth rate of 0.4 per cent.

Industry body Assocham President B.K. Goenka said that with the onset of the festive season and sufficient monsoon rains, “we expect an all-round improvement across different sectors even as the banks gear themselves with higher liquidity of over Rs 5 lakh crore”. 

ICRA Principal Economist Aditi Nayar said: “The contraction in volumes in the auto sector, the YoY decline in the value of merchandise exports, as well as a slowdown in growth in other consumer sectors seem to have underpinned the marginal rise in manufacturing GVA growth in Q1 FY2020, negating the benefits arising from low commodity prices.”

India Ratings and Research’s Chief Economist Devendra Pant said: “Q1 FY20 GDP growth at 5 per cent was 25-quarter low. The growth slowdown was led by private final consumption expenditure, which grew 3.1 per cent only. Investment demand also remained lacklustre and fixed capital formation grew 4 per cent.”

GDP growth numbers:

Q1 FY20 GDP growth — 5 per cent 

Q4 FY19 – 5.8 per cent

Q3 FY19 – 6.6 per cent

Q2 FY19 – 7.0 per cent

Q1 FY19 – 8.0 per cent

FY19 GDP growth – 6.8 per cent

FY18 GDP growth – 7.2 per cent 

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