NEW DELHI: Confirming fears that India may be up against a protracted slowdown, official data released on Friday showed the country’s GDP growth nose-dived to a 7-year low as muted consumer demand, turmoil in the NBFC sector, and global trade spats hurt the economy.
While economists were not expecting robust numbers, they were alarmed as India’s growth in Q1 was lower than China’s 6.2% for the same period, which was the country’s lowest in three decades.
It also means the government’s plan to grow India’s economy to $5 trillion over the next five years may not be easy.
According to M Govinda Rao, former member of the Prime Minister’s Economic Advisory Council, the $5-trillion target will remain “a distant dream”.
“We’ve been talking of slowdown in demand for long and today’s figures only underline it. The manufacturing sector has grown just 0.6%, compared to 12.1% in the same period last year. It shows the problem has deepened. People are not buying. The government should now seriously look at structural reforms including in the labour and land markets as a way out of this morass,” he said.
The numbers paint a bleak picture of the economy.
Agriculture grew just 2%, compared with 5.1% in the same quarter last year. Construction sector growth shrank to 5.7% against 9.6%. Even the services sector put up a poor show.
“The slowdown is obviously much deeper and broad-based than previously understood,” said N R Bhanumurthy, professor at National Institute of Public Finance and Policy.
“However, the current policy measures which have been announced by the government and possible improvements in external factors could see a recovery, albeit slowly, in the next couple of quarters,” he added.
While the government has finally acknowledged there is a slowdown in the economy and has started taking corrective measures, economists think the overall growth for the full year would remain subdued, with Prof Rao forecasting 5.5-6% GDP growth for FY20.
The poor growth numbers may also prompt RBI to continue with its policy of cutting interest rates.
“RBI will feel vindicated in its dovish shift this year and will almost certainly add to the 110 bps of policy rate cuts introduced so far,” said Mark Wiliam, Chief Asia Economist with Capital Markets, in a note on the GDP numbers.
“The problem area is the extent of the demand squeeze we are facing. Private consumption growth has fallen to a four-year low of 3.1% in this quarter,” said Biswajit Dhar, Professor of Economics, Jawaharlal Nehru University.
“Measures such as FDI rule changes and more liquidity to the private sector will help, but the government will have to do some amount of pump-priming by spending more money on infrastructure.