GDP growth slows down to 7% in Q1
NEW DELHI: India’s economic growth slowed to 7% during April-June from previous quarter’s 7.5% amid worrying symptoms of weak investment and consumer spending , which are likely to fuel calls for a rate cut as well as faster reforms.
Data released on Monday showed that growth in “real” or inflation-adjusted GDP — the total value of all goods and services produced in the country — matched China’s 7%. But, India will need to grow at a faster clip to outpace its giant neighbour, whose deepening economic crisis has sent ripples across the world and seen by many as an opportunity for New Delhi to take the lead in global growth.
“Growth in GDP does not suggest any significant turnaround as yet though it comes higher
than last year. The industrial recovery is yet to materialise,” CARE Ratings, a credit-rating and research firm, said in a report. GDP expanded by 6.7% in April-June last year. The data came on the day the government allowed the controversial land ordinance to lapse after failing to get the Opposition’s support.
The national income data, measured by a controversial formula that covers a raft of activities from farm livestock to mega infrastructure projects, showed manufacturing sector grew at 7.2% during the first quarter, slower than the 8.4% expansion in the previous quarter as also in April-June 2014. A separate set of data showed that infrastructure sector growth slowed to a three-month low of 1.1% in July, compared to 4.1% growth the previous year, as output of crude, natural gas and steel contracted.
The vital farm income grew at 1.9% during the quarter compared with the previous quarter’s 1.4%, and 2.6% growth during April-June last year.
But a below-normal monsoon for the second consecutive year has precipitated worries. A strong agriculture sector, which accounts for 14% of GDP but supports about half of the country’s population, is critical to sustaining the recovery in Asia’s third largest economy.
Household spending, too, is a concern. Inflation-adjusted private final consumption expenditure — a gauge of family spending — grew at 7.4% in the quarter, higher than the previous year’s 6.2%, but still not strong enough to suggest that people are spending more on cars and other consumer goods.
Shop-end data also show that households are not buying goods at a pace to pull growth in the broader economy. Car sales, for instance, have grown at a muted 7.4% during this fiscal, so far.
“If we look at the overall numbers in April May and June, volumes have been more or less stagnant. This isn’t a healthy sign,” said Mayank Pareek, president, passenger vehicle business unit, Tata Motors.
The feeble growth in consumer purchases may have also forced many companies to defer adding capacity.
“Like every year, it will again all boil down to how good the festive season is this year. We need the industry to grow as a whole as our own individual performance provides little solace,” Pareek said.
Economists, however, expect the recent rate cuts and low inflation to push spending. “GDP growth this year will be led by consumption growth backed by falling inflation and monetary easing,” said Devendra Kumar Pant, chief economist, India Ratings & Research, a credit rating and research firm.