GDP growth declines to lowest in 11 years
Economy grows at 3.1% in Q4 of FY20; govt breaches fiscal target
NEWDELHI: India’s economy grew at its slowest pace in at least eight years in the JanuaryMarch quarter as the already sluggish consumer demand and investments weakened after the nation of 1.3 billion people went into lockdown to contain the coronavirus disease (Covid-19) outbreak.
Gross domestic product (GDP) grew at a faster-than-expected 3.1% in the last quarter, compared with 5.7% a year ago, government data showed on Friday. A Reuters poll of economists had forecast a growth rate of 2.1% for the March quarter, compared with a downwardly revised 4.1% rise in the OctoberDecember period in 2019. A Bloomberg survey of economists had estimated 1.6% growth.
A separate report showed the fiscal deficit for the year through March 2020 reached 4.59% of GDP, breaching the government’s 3.8% target.
In 2019-20, the economy grew
by 4.2% against 6.1% expansion in 2018-19. This was lower than the Reserve Bank of India’s (RBI) projection of 5%. The economic growth was the lowest since 2008-09 when the economy had expanded at 3.1%.
The strict nationwide lockdown imposed from March 25 brought the economy to a virtual halt, stranding millions of migrant workers without jobs. Economists are betting on contraction in GDP in the fiscal year through March 2021, which would be the first decline in more than four decades.
Manufacturing contracted 1.4% last quarter from a year ago, while construction plunged 2.2%. Financial services grew 2.4%, trade, hotels and transport gained 2.6% and agriculture climbed 5.9%, according to data released by the National Statistical Office (NSO). The government said the GDP estimates were “based on available data” and likely to undergo revision.
The key services industries — contributing 55% of GDP and including businesses from call centers to software developers
to hotels — took a severe knock during the lockdown and may show a deeper decline in the current quarter. India had the world’s worst services purchasing managers index in April, at 5.4, signaling a deep contraction at the start of the quarter.
This “is barely a consolation”, said Kunal Kundu, an economist with Societe Generale GSC Pvt. “There is a higher probability that the impact of the week-long lockdown in March is not necessarily fully priced in, in the GDP data.”
The tourism industry is another one that’s taken a massive hit. “The tourism industry will witness an unprecedented scale of job losses,” said Patanjali Govind Keswani, chairman and managing director of Lemon Tree Hotels Ltd. “Currently 60% of branded hotels in India are shuttered while the remaining 40% are operating with less than 10% of revenues.”
Meanwhile, the Central Statistics Office (CSO) revised downwards growth in the previous October-December quarter of 2019-20 to 4.1% from 4.7%. Similarly, the first and second quarter growth figures were revised downwards to 5.2% and 4.4% from 5.6% and 5.1%.
Earlier this month, the government had unveiled a support package worth ~20 lakh crore — about 10% of the country’s GDP — to help cushion the blow, including easing access to credit for small businesses and offering cheap loans to workers and farmers. However, with revenues already under pressure before the virus outbreak began, authorities have limited fiscal space to provide a more immediate boost.
Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said, “The economy had clearly slowed down even before Covid-19 hit India. The contraction in investment was visible in the pre- Covid-19 period too. This, in some sense, serves as the warning for the deep slump due in Q1 of FY21.
As India’s GDP growth rate came down, senior Congress leader P Chidambaram slammed the Centre saying the latest figures were a “running commentary on economic mismanagement in the country”.
“We had forecast that the Gross Domestic Product for Q4 will touch a new low at below 4 per cent. It has turned out to be worse at 3.1 per cent ,” he tweeted.