India’s economy has been pared to the bone with September quarter GDP growth crashing to a six-year low of 4.5%. The much-derided 5% growth in the June quarter now appears respectable.
The biggest shocker was nominal GDP (adjusting for inflation), which stood at a decade low of 6.1%. Given FY19’s fiscal deficit target of 3.4% was against the nominal GDP of over 11%, a drastic fall in FY20 nominal figure could upset the government’s fiscal consolidation drive.
From a period of prosperity (7%) to a period of peril (4.5%), growth has been falling in devastating style. Friday’s data only confirm that the economy is on a graveyard spiral for six quarters straight, including three consecutive quarters of below 6% growth.
While it gives ammunition to RBI to further cut rates next week, it confirms that restoring both India’s fastest-growing tag and the government’s ballyhooed $5-trillion target will face an agonising delay.
Now, two most fundamental points — if growth has bottomed out and when recovery will begin — remain up for question. Economists hint the worst isn’t over yet.
“Leading indicators suggest the festival month of October was the worst in the current cycle. Growth could weaken further to 4% in Q3, which will mark the trough. Our full-year growth forecast, thus, is revised down to 4.5% for FY20,” said Nikhil Gupta, chief economist at Motilal Oswal.
But what went wrong? As it turns out, everything.
October core industries data, released moments before the GDP numbers, showed 5.8% contraction against the previous month’s 5.2%. The output of six of the eight core sectors declined in tandem.
Another set of data released on Friday showed that India’s fiscal deficit breached the full-year target in seven months flat.
At Rs 7.2 lakh crore, our market borrowings stood at a whopping 102.4% of the budgeted target for FY20.
Disappointingly, net tax receipts in April-October stood at a lowly Rs 6.83 lakh crore, while total expenditure was bursting at the seams at Rs 16.55 lakh crore.
Private consumption growth picked up at 5.1% in Q2, while government consumption growth almost doubled to 15.6%.
However, total investment growth weakened to a 22-quarter low of 0.5%.
In all, GDP in the September quarter stood at `35.99 lakh crore against Rs 34.43 lakh crore the previous year.