Stable rupee, declining oil price signs of Indian economy on the rebound: Subhash Chandra Garg

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New Delhi | Published: June 4, 2019 3:29:03 AM

Private consumption, which was holding up the economy until the first half of FY19, slowed down for a second straight quarter – to 7.2% from 8.1% in the first quarter.

india growth, india GDP, rupee rate, oil prices india, indian economy, asian economy, rupee, indian rupee, indian rupee in 2019(Image: Reuters)

The economic growth – which hit a five-year low of 5.8% in the March quarter – is showing signs of a rebound, finance secretary Subhash Chandra Garg said on Monday.

In a tweet, Garg said: “Turnaround in demand and financing conditions beginning very well. PMI manufacturing is at 52.7. Crude is moving towards 60 dollars. Govt bond yield has gone below 7%. Spread for NBFCs/HFCs over Govt bond is narrowing. Rupee is firmly below 70. Sure signs of coming high growth.”

The Nikkei India Manufacturing Purchasing Managers’ Index improved to 52.7 in May from 51.8 in April. The improvement was led by a good performance of the consumer goods segment, with rates of expansion in output, total sales, new export orders and employment surpassing those seen in the intermediate as well as capital goods categories. “A revival in new order growth promoted a faster upturn in manufacturing production, as Indian firms sought to replenish inventories utilised in May to fulfill strengthening demand,” said Pollyanna De Lima, Principal Economist at IHS Markit and author of the report.

Last week’s GDP data showed, with a fourth straight quarter of slowdown, India lost the fastest-growing large economy status in Q4FY19, trailing China’s growth (6.4%) for the first time in nearly two years. The full-year GDP growth, too, slumped to a five-year low of 6.8% in FY19. Having witnessed double-digit growth in recent quarters, expansion in gross fixed capital formation crashed to just 3.6% in the March quarter, indicating private investors still kept away.

Private consumption, which was holding up the economy until the first half of FY19, slowed down for a second straight quarter – to 7.2% from 8.1% in the first quarter.

Analysts say the slowdown bolsters the chances of a third straight round of rate cut by the monetary policy committee (MPC) in its next meeting in June and could force the new government to scour for stimulus measures to improve investment. But the government’s ability to boost capex is severely constrained by higher revenue spending.

On the supply side, farm sector growth in the March quarter contracted (by 0.1%) for the first time since the third quarter of FY16, albeit on an unfavourable base. Garg had then blamed “temporary factors”, including the NBFC crisis and high interest rates, for the GDP growth slowdown in the March quarter and added the MPC would take note of all these indicators.

He, however, had expressed confidence that the economic expansion will pick up pace from the next quarter, as liquidity is improving and credit offtake picking up pace, while schemes like PM Kisan will stimulate private consumption. Chief economic advisor Krishnamurthy Subramanian said core consumption still remained robust.

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