India's GDP growth slows to 5% in April-June 2019


The Central Statistics Office today released the gross domestic product numbers for April-June quarter, which showed India’s GDP expanded 5% in the quarter through June – the slowest pace in six and half years.

The Indian economy grew 5 percent year-on-year in first quarter of FY2020, slowing from a 5.8 percent expansion in the previous quarter and missing market expectations of 5.7 percent. It was the weakest growth rate since the first quarter of 2013.

Here’s how each sector fared:

*
Manufacturing’ sector grew by 0.6 percent as compared to growth of 12.1 per cent in Q1 2018-19.

* GVA for
‘Agriculture, Forestry and Fishing’ sector grew by 2 percent as compared to growth of 5.1 percent in Q1 2018-19.

*
‘Mining and Quarrying’ sector grew by 2.7 percent as compared to growth of 0.4 percent in Q1 2018-19.

*
Electricity,Gas, Water Supply and Other Utility Services’ sector grew by 8.6 percent as compared to growth of 6.7 percent in Q1 2018-19.

*
Construction’ sector grew by 5.7 percent as compared to growth of 9.6 percent in Q1 2018-19.

*
Trade, Hotels, Transport, Communication and Services grew by 7.1 percent as compared to growth of 7.8 percent in Q1 2018-19.

*
Financial, Real Estate and Professional Services grew by 5.9 percent as compared to growth of 6.5 percent in Q1 2018-19.

*
Public Administration, Defence and Other Services grew by 8.5 percent as compared to growth of 7.5 percent in Q1 2018-19.

The moderation in GDP expansion is in line with industrial production growing at 3.6% in the first quarter compared with 5.1% a year earlier. High-frequency indicators such as automobile sales, rail freight, domestic air traffic and imports (non-oil, non-gold, non-silver and non-precious and semi-precious stones) indicate a slowdown in consumption, especially private consumption, even with low inflation.

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India’s passenger vehicle industry suffered its worst performance in 19 years in July with a 31% drop in sales and the ninth consecutive month of declining sales, underscoring a sharp decline in demand.

Although the RBI has cut the key lending rate four times in succession by a total of 110 basis points, economists are apprehensive of this translating into growth soon. One basis point is one-hundredth of a percentage point.

As per the minutes of the RBI’s Monetary Policy Committee meeting, there is “clear evidence of domestic demand slowing down further… investment activity has been losing traction and the weakening of the global economy in the face of intensifying trade and geo-political tensions has severely impacted India’s exports, which may further impact investment activity.”

The RBI had said that the importance of surplus liquidity has increased “in view of the shadow banking stress.”

But in spite of a windfall dividend to the government of nearly $21 billion from the central bank, the room for aggressive stimulus is limited due to slower growth in tax receipts, analysts say.

India could consider a “modest stimulus” for some sectors after the Reserve Bank of India‘s hefty dividend while following fiscal discipline, said a senior government official, who declined to be named.

During April-June, the government’s capital spending fell 28% from a year earlier to 630 billion rupees ($8.81 billion), partly due to restrictions on announcing new projects during the election campaign that took place in part of that period.

Industry chambers are lobbying for a cut in goods and services tax rate on passenger vehicles and cement to revive growth, warning that falling sales could force more job cuts.

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The unemployment rate rose to 7.51% in July from 5.66% a year earlier, estimates the Centre for Monitoring Indian Economy, a private think tank in Mumbai.





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