GDP growth declines to 6.6% in Q3

The Indian economy decelerated at a faster pace than anticipated in the December quarter of 2018-19 to 6.6%—the lowest in five quarters—increasing chances of another round of rate cuts by the Reserve Bank of India in April to support growth.

However, the dismal growth print, the last before the general election due by May, is likely to take some sheen away from the economic record of the Narendra Modi government, which is seeking a second term in office.

The Central Statistics Office also revised downward its full-year growth forecast for the current fiscal year to 7% from the 7.2% estimated earlier. The data for the first (June) and second (September) quarters were also revised downward to 8% and 7% respectively. Thus, in the March quarter, the economy is implicitly assumed to decelerate to 6.4%.

The size of the Indian economy estimated through nominal GDP was revised upward to ₹190.54 trillion ($2.7 trillion) against ₹188.41 trillion ($2.65 trillion). This will help the government achieve the fiscal deficit target of 3.3% of GDP for 2018-19 as originally estimated in last year’s budget against the revised estimate of 3.4%.

While the slowdown in the second half (October-March) of this financial year was expected, CSO now estimates it to be sharper than it earlier estimated. However, most international agencies project India’s growth to bounce back in the next fiscal year.

The International Monetary Fund last month projected India’s growth at 7.5% in 2019-20 amid slower global expansion. Risks to global growth tilt to the downside, with IMF cutting 2019 growth projection by 20 basis points (bps) to 3.5%.

India still remains the fastest growing economy as China’s economy cooled in the December quarter to a 28-year low of 6.4%.

The Monetary Policy Committee of RBI on 7 February changed its stance from calibrated tightening to neutral and cut the policy rate by 25 bps on the back of benign headline retail inflation and slowing global growth. India’s retail inflation slowed further to a 19-month low of 2.05% in January while factory output, dragged down by a negative base effect, remained subdued in December, which is expected to open more space for the central bank to cut interest rates.

During the fiscal year ending 31 March, while agriculture growth is projected to sharply slow down to 2.7% from 5% a year ago, manufacturing is estimated to accelerate to 8.1% from 5.9% a year ago. The labour-intensive construction sector is estimated to pick up pace to grow at 8.9% from 5.6% in the previous year. However, the largest employer in the services sector— trade, hotels and transportation— is set to decelerate to 6.8% from 7.8% a year ago.

Data released separately by the ministry of commerce and industry on Thursday showed that core sector growth of eight infrastructure industries slowed to a 19-month low in January at 1.8% as electricity generation contracted after a gap of 71 months.

The GDP data showed that private consumption continued to propel economic growth while the earlier estimates of a revival in investment demand seemed unlikely with an almost flat growth in 2018-19 at 10%. In the first advance estimates released in January, investment demand as represented by gross fixed capital formation was estimated at 12.2%.

However, according to the latest data released by RBI on Thursday, non-food bank credit rose by 13.1% in January 2019 as compared to 9.5% in January 2018. Similarly, credit to industry rose by 5.1% in January 2019 as compared with an increase of 1.1% in January 2018.

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