Statsguru: The anatomy of slowing growth

Going further below than the downward revisions in growth made by domestic observers, economic growth slumped to the lowest under Modi 1.0 at 5.8 per cent in the fourth quarter of 2018-19. A previous such low was recorded in the December quarter of 2014-15, as Chart 1 shows. 

The economy, which had picked up momentum to reach the peak of 8.2 per cent in 2016-17, slid to 6.8 per cent in FY19, following two years of slowdown. Thus, Modi 2.0 takes over in a situation very close to that when Modi 1.0 took over (Chart 2). 

One of the biggest contributors to the slowdown is the investment rate, defined by the share of gross fixed capital formation (GFCF) in the GDP. Investment rate crossed the 30 per cent barrier for two quarters in FY19, first time since Q2 FY15. But in March quarter of FY19, it went down to 27.9 per cent, according to recent estimates, closer to the investment slowdown that happened around demonetisation (Chart 3). 

The growth in investments showed a sharper dip. For the first time under Modi’s first term, investments grew at more than 10 per cent for five consecutive quarters. It has nearly kissed the ground at 3.6 per cent in Q4 FY19, falling from 11.7 per cent in the previous quarter, reveals Chart 4. 

Agriculture and manufacturing have shown a consistent slowing down along four quarters of FY19, with the former contracting in Q4. The faster expansion in financial services and the public sector gave some respite, shows Chart 5. Private consumption contributed substantially lesser to the economy (GDP) compared to the previous quarter (Q3 FY19). Size of government expenditure at a tenth of the GDP remained nearly the same (Chart 6).