India’s economy grew at a lower-than-expected 7.1% in the June quarter — the lowest expansion in six quarters — as a 19% year-on-year jump in government consumption and near removal of the drag on growth from foreign trade were more than reined in by a fall in investments. The GDP had grown 7.9% in the previous quarter and 7.5% in Q1 FY16.
Among sectors, agriculture and services more or less held up, mining unexpectedly plunged into negative territory and construction disappointed. As in the past quarters, manufacturing posted robust growth, going by the Central Statistics Office (CSO) data released on Wednesday, but a puzzling dissonance of this estimate with high-frequency data persisted (see chart).
Also, while the government’s final consumption expenditure, according to CSO, saw such huge increase (its share in GDP went up from 10.8% in Q1FY16 to 12% in Q1FY17), even the 25% year-on-year growth in the Centre’s Plan expenditure in April-July or 9% growth in its overall spending in the period, as revealed on Wednesday, did not suffice to explain the 19% jump in GFCE. The fall in gross fixed capital formation, despite ostensible efforts by the government to incentivise private investments over the last few months, has been almost precipitous. GFCF growth fell from 9.7% in Q1FY16 to 1.2% in Q3FY16 and further, to -1.9% in Q4FY16 and -3.1% in Q1FY17.
Nominal GDP growth in Q1 this year was 10.4% (the same as the previous quarter), compared with 8.8% in the corresponding quarter last year. A rise in the implicit GVA deflator due to the hardening of the WPI inflation came in as statistical downside in Q1, with real GDP estimated at 7.1% against 7.9% in the previous quarter.
Department of economic affairs secretary Shaktikanta Das said the lower GDP growth is mainly on account of higher subsidy expenditure.