Private consumption, the bulwark of the country’s growth story in recent years, grew 3.1% in Q1FY20, a four-year low.
As real GDP in the three months to June grew at 5%, the slowest in 25 quarters, the economic slowdown has deepened, and a broad-based and sustained recovery may take several more quarters. While GDP growth decelerated for five successive quarters, private consumption and manufacturing decelerations are particularly noticeable. Investment growth, too, continues to be low, and even services failed to maintain buoyancy.
Private consumption, the bulwark of the country’s growth story in recent years, grew 3.1% in Q1FY20, a four-year low. In fact, this is not the first time that quarterly GDP and private consumption growth fell below 5%. In FY13, GDP growth was below 5% for two quarters—Q1 and Q4—and private consumption collapsed to (-)0.9% in Q1FY13.
Nominal GDP, too, slowed down to 8%, the slowest since Q3FY03, after considering the previous two series of national accounts. As nominal GDP growth is a proxy for growth in incomes, the slowdown will impact the tax revenue growth rate.
Much of the cyclical slowdown has affected sectors that are large employment generators, indicating that incomes and employment growth in these have suffered. Moreover, households have been dipping into their savings in the past, while leveraging themselves.