Lacklustre performance of major segments drag down GDP growth in Q3

Major indicators that are part of the calculation of the gross domestic product (GDP) — like production of coal and crude oil, sales of commercial vehicles, and cargo handled at airports — recorded lacklustre performance in the third quarter of financial year 2019-20 (Q3FY20), compared to the corresponding period of the previous year.

For instance, sales of commercial vehicles contracted 17.3 per cent in Q3, against a growth rate of 6.7 per cent in the corresponding period a year ago. Similarly, production of coal fell by 4.3 per cent, against a growth of 5.1 per cent a year ago. Some segments, such as cement, steel, and cargo at major ports, saw growth but at a rate that was miniscule compared to Q3FY19. For instance, consumption of steel rose by just 0.3 per cent in the period, while it was 8.2 per cent a year ago. Similarly, cargo handled at major sea ports saw an increase of just 0.1 per cent in Q3FY20, against 1.4 per cent in the year-ago period.

The only two indicators that grew at higher rates in Q3 of the current fiscal than the previous year were aggregate bank deposits and the consumer price index (CPI)-based inflation rate.

The rise in aggregate bank deposits by 9.7 per cent in Q3FY20, against 8.9 per cent increase in the same period of the previous year, reflected lack of investment opportunities. “Bank deposits are rising at an increasing rate because the investment climate is not getting created and there is uncertainty on various investment instruments,” said D K Srivastava, chief policy advisor at EY.

On the other hand, CPI inflation rose to 5.8 per cent in Q3, compared to 2.6 per cent a year ago. Its wholesale price index counterpart, however, dipped to 1 per cent against 4.5 per cent the previous year. Both CPI and WPI figures are taken into account in GDP data depending on the sectors in question.

The net effect of these price movements is that while GDP at current prices stood at 7.7 per cent in Q3FY20, as against 11.4 per cent a year ago. GDP at constant prices expanded by 4.7 per cent, against 5.6 per cent in the year-ago period. 

Among the sectors that rose at a slower pace in Q3 than a year ago was aggregate bank credits, which grew by 7 per cent, against 13.9 per cent a year ago, affecting investment growth. Gross fixed capital formation (GFCF) contracted 5.1 per cent, against a growth of 11.4 per cent the previous year.