Gross domestic product (GDP) in India grew at 5 per cent in April-June 2019, the slowest since 2013, on account of subdued economic activity in sectors, from services and manufacturing, to agriculture and construction.
But more importantly, the economy grew at 8 per cent in nominal terms — courtesy low levels of inflation — the slowest since the third quarter of 2002-03, taking into consideration the previous two series of national accounts.
Nominal GDP growth is a proxy for growth in incomes, and the current slowdown signals a sharp fall in the latter. Further, the Union Budget has assumed an 11 per cent nominal growth rate, and a tax revenue growth rate of more than 15 per cent. The fiscal balance of the Union and state governments could see trouble because poor nominal growth adversely affects tax collection.
Various high-frequency indicators such as sales of passenger and commercial vehicles; production of capital goods, consumer durables, steel and cement; use of air travel, among others, had shown contraction, or poor growth, in the April-June period. The official growth estimate falls in line with this trend.
Chief Economic Advisor Krishnamurthy Subramanian, however, attributed the slowdown chiefly to a global economic downturn.
“Impact comes, especially, from global headwinds due to deceleration in developed economies, Sino-American trade conflict etc. Similar phenomena were observed previously during Q4 2012-13 and Q4 2013-14, when growth was around 5 per cent,” he said in a series of tweets.
Bibek Debroy, chairman of the Prime Minister's Economic Advisory Council, said he expected the economy to grow faster in coming quarters, which should not be “lightly dismissed” when many countries in the world were “struggling to find positive growth”.
China grew at 6.2 per cent in the June quarter, according to its official data.
Private spending grew at 3.1 per cent, one of the slowest rates since the new national accounts series began in 2012. Investments (gross fixed capital formation) grew at 4 per cent, reflecting poor sentiment among investors and big companies. Government expenditure grew at a faster rate than the economy.
Experts raised concern over the grim picture of the economy. “There are both structural and cyclical issues are plaguing the Indian economy. As construction/real estate are biggest employers after agriculture, reviving real estate is crucial for an uptick in investment and consumption,” said Devendra Pant, chief economist at India Ratings.
Manufacturing stagnated, growing just 0.6 per cent over the same quarter of the previous year. The sector has seen protracted slow growth since FY18. The services sector grew at just below 7 per cent in real terms. Only thrice in the last seven years have services grown slower than this.
Agriculture and construction grew at 2 per cent in Q1 FY20. These sectors traditionally provide millions of jobs to farm and industry labourers in the unorganised sector. A slowdown in the June quarter appeared more pronounced due to an unfavourable base effect, too, because the economy had grown at 8 per cent in the first quarter of FY19.