Slowest GDP growth in 6 years still leaves room for optimism; here’s when economy may pick up

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Published: August 30, 2019 7:28:53 PM

Economy’s growth has narrowed for the fourth quarter in a row. Steep fall in the growth can be largely attributed to the weakness in the manufacturing sector.

gdp, gdp growth, economy, nirmala sitharaman, cso, mospi, manufacturing, services, industryCSO figures reveal that the IIP manufacturing registered a growth rate of 3.2 per cent during Q1 FY20 as compared to 5.1 per cent in the same quarter in the preceding year.

Amid a slowdown in consumer demand and investment, India’s GDP grew at 5 per cent in Q1 FY20, which is the weakest growth in the last six years. Economy’s growth has narrowed for the fourth quarter in a row. Steep fall in the growth can be largely attributed to the weakness in the manufacturing sector. Manufacturing registered negligible growth of only 0.6 per cent against 12.1 per cent in the same quarter a year earlier. CSO figures reveal that the IIP manufacturing registered a growth rate of 3.2 per cent during Q1 FY20 as compared to 5.1 per cent in the same quarter in the preceding year. Growth in construction and agriculture sectors also substantially declined. Construction grew at 5.7 per cent against 9.6 per cent, while agriculture grew 2 per cent against 5.1 per cent.

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“Given the indications we have seen in the past few months, growth was expected to be slow. However, 5 per cent is far below street estimates of 5.6-5.7 per cent and does come as a surprise,” said Gourav Kumar, Principal Research Analyst at FundsIndia.com. Manufacturing growth staying almost flat is also worrying and immediate steps are needed to revitalise this sector, he added. An overall recovery may take another couple of quarters as the NBFC sector is still recovering from the liquidity crisis, he further said.

Private final consumption expenditure (PFCE) has reduced in comparison to the last year. From 56.1 per cent of the GDP in Q1 FY19, it has reduced to 55.1 per cent of the GDP in the Q1 FY20. “The contraction in volumes in the auto sector, the on-year 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,” said Aditi Nayar, Principal Economist, ICRA. However, manufacturing GVA growth may not remain this anaemic going forward with substantial inventory correction likely to have been undertaken even when the consumer sentiment and exports remain relatively subdued, she added.

Consumer sentiment is continued for a long time and shows no sign of recovery in the near future. Demand in the manufacturing sector has been under stress globally since the last one year. However, there are positive expectations for the second half of the current fiscal year.“The second half of the year is expected to see some pickup in demand with the festive season and favourable monsoons so far this year could lead to improved rural income,” said Madan Sabnavis, Chief Economist, Care Ratings. He added that the measures taken by the government and seasonal factors are likely to revive the growth going forward.

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