Farm sector stutters, GDP growth-rate cools, India loses fastest growing GDP title temporarily

Last Updated: Sat, Jun 01, 2019 10:27 hrs
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The Indian economy has temporarily lost steam in challenging the mighty Chinese dragon. Temporary is perhaps the most safest adjective one can attribute after taking a read of provisional estimates released by the Central Statistics Office. The agency released India's GDP numbers on Friday. This data makes a number of assertions. Primary among them is an assertion that India's economy slipped by 5.8 percent in the fourth quarter ending March 2019.

GDP growth in the previous quarter was recorded at 6.6 percent.

In the fourth quarter of the last fiscal year (2017-18) GDP growth was reported at 8.1 percent.

The numbers presented by the CSO underlines a cooling economy - one that sees fewer jobs, marginal growth in income, productivity dropping in key sectors such as agriculture, and a weak demand. These are problems not only for the country's length and breadth but also for the corporate sector. A tepid demand obviously hits sales for which in turns arrests profit metrics from growing.

Here are key highlights from CSO's data-points:

1. GDP (gross domestic product) at constant (2011-12) prices in Q4 of 2018-19 is estimated at Rs 37.20 lakh crore, as against Rs 35.15 lakh crore in Q4 of 2017-18, showing a growth rate of 5.8 per cent,"

2. "Real GVA, (GVA at basic constant) (2011-12) prices for the year 2018-19 is now estimated at Rs 129.07 lakh crore, showing a growth rate of 6.6 per cent over 'First Revised Estimates of GVA' for the year 2017-18 of Rs 121.04 lakh crore released on January 31, 2019,
*GVA includes taxes, but excludes subsidies.

3. As per the data, the economic activities which registered growth of over 7 per cent on a YoY basis in 2018-19 were 'public administration, defence and other services', 'construction', 'financial, real estate and professional services', 'electricity, gas, water supply and other utility services'.

4. "The growth in the 'agriculture, forestry and fishing', 'mining and quarrying', 'manufacturing' and 'trade, hotels, transport, communication and services related to broadcasting' is estimated to be 2.9 per cent, 1.3 per cent, 6.9 per cent and 6.9 per cent, respectively," the CSO said.

5. Sector-wise, GVA for 2018-19 from "agriculture, forestry and fishing" sector showed a growth of 2.9 per cent, from 5 per cent in 2017-18.

6. The GVA in 2018-19 from the manufacturing sector grew at 6.9 per cent, as compared to 5.9 per cent in the previous fiscal.

7. The mining and quarrying sector grew by 1.3 per cent against previous year's growth rate of 5.1 per cent.

8. Real GDP or GDP at constant (2011-12) prices is now estimated at Rs 140.78 lakh crore. The GDP growth estimate during FY 19 was revised to 7 per cent as compared to 7.2 per cent in 2017-18.

What is concerning?

For the full fiscal 2018-19, the country recorded GDP growth of 6.8 per cent - a low in five fiscal years. Last fiscal year, India's GDP growth rate was reported at 7.2 per cent.

B Prasanna, Group Head-Global markets at ICICI Bank explains some of the concerns in a note. He says, "Additionally, the core GVA growth (ex-agriculture and ex-Government spending) has dipped to a multi-quarter low. As expected, consumption showed visible tepidity, while the substantial investment slowdown is worrisome."

"The lead indicators during the quarter had implied industrial sector stress on account of high costs of borrowing, increase in commodity prices and a slowdown in global trade."

What happens to 'Fastest' title?

The Indian economy has lost the title of fastest growing economy with this result, at least temporarily. India's fourth quarter GDP growth rate of 5.8 percent is lower than China's (6.4 percent) posted in the same period. On the brighter side, however, India's annual GDP growth rate stands at 6.8% while China reported 6.6%.

Although India has maintained the title of fastest growing GDP rate, there have been cases when it lost that title temporarily. India overtook growth-rate of the Chinese economy in Feb 2018 on a quarterly basis. Chinese economy grew 6.8 percent in the three months to December'17 while India said it grew over 7%.

Media reports drop a vivid picture of India jostling with China on the GDP growth-rate parameter, but Beijing has had concerns of its own. For beginners, the validity of China's growth rates have been questioned multiple times. Secondly, Chinese investments and consumer sentiments may have reportedly tapered in recent times. Companies ranging from Apple, Samsung to even BMW have reported of declining sales owing to weak domestic consumption. The major headache for Chinese exporters- the US trade war and tariffs continue eating into export numbers for the dragon.

Also, the fastest title may be irrelevant considering various economies have posted GDP growth-rates higher than 8 percent with minimal impact to other factors including social conditions. Bangladesh for instance runs an economy that has grown since 2013 at an annual rate of 6.01 percent. In 2018, the country posted a GDP growth rate of 7.9 percent. But, the average labourer in Bangladesh earns half of what the labourer in India earns.

What looks depressing:

Sadly the narrative that India has lost the title may not sound as depressing as job growth-rate i.e. unemployment rates that hit a 45 year high in 2018. The government accepted a previous NSO report that said unemployment had hit a high of 6.1 percent in 2017-8. The government three months ago rubbished a scoop on this report.

The scenario of agriculture sector too does not look very bright.

Elaborating further on the CSO data, Prasanna says "weak rural activity indicators have also been impeding growth recovery as captured in low rural wages, slowdown in credit to medium scale industries and nascent recovery in two-wheeler and commercial vehicle sales. Acreage for the rabi crop was lower than last year, which has impinged on the agricultural performance."

He expects consumption impulses to remain muted in the upcoming print and recovery in the same will "depend on the monsoons and the efficacy of the income schemes for the rural population."

Monsoons have remained more or less erratic in the past five years and water scarcity has been amply reported from states of Maharashtra, Tamil Nadu and other parts of the country. The factor of a developing El-Nino could potentially leave farmers with a hole in their incomes.

Incomes have slipped:

Growth rate for national income too has slipped. The CSO said that the Gross National Income (GNI) was estimated to have increased by 6.9 percent during 2018-19. Last year it grew at 7.2 percent "GNI at 2011-12 prices is now estimated at Rs 139.32 lakh crore during 2018-19, as against the previous year’s estimate of Rs 130.34 lakh crore," said the agency.

"The Per Capita Income in real terms (at 2011-12 Prices) during 2018-19 is estimated to have attained a level of Rs 92565 as compared to Rs 87,623 for the year 2017-18. The growth rate in Per Capita Income is estimated at 5.6percent during 2018-19, as against 5.7 percent in the previous year," added the agency.

The CSO's data on per-capita income implies that per-capita income on a monthly basis stands at Rs 7,713.75 in real terms.

On Friday, the Finance Ministry in a press conference attributed the slow growth to some temporary factors such as NBFC sector's liquidity crunch.

"There was some slowdown in quarterly growth due to temporary factors. Problems in the NBFC sector reflected in the consumption slowdown," said Finance Secretary Subhash Chandra Garg in the briefing while adding the slowdown could continue in the first quarter of the current fiscal but the situation would improve in the second quarter (July-September).

"We see growth and consumption improving in the July-September (second quarter) period. Problems faced by NBFCs affected consumption in the finance sector, expect credit growth in the NBFC sector to pick up . Expect pick-up in capital and private investment", he added.

IANS quoted Sunil Kumar Sinha, Director Public Finance and Principal Economist at India Ratings & Research as saying, "Clearly the economy is slowing down and these numbers would be a cause of worry for the new central government."

"Given the budgeted fiscal deficit at 3.4% of GDP Ind-Ra believes the head room available to provide fiscal stimulus is limited. However, given the current inflation level which is well within the target range RBI may go for a rate cut in the forthcoming second bi-monthly monetary policy review."

Prasanna of ICICI Bank too suggests that the banking regulator could opt for a rate cut. "We expect some downside bias to our FY2020 growth estimate of 7.2% YoY, and the next print for Q1 FY2020 is also likely to be fairly weak. Against the backdrop of a benign inflation trajectory and sharp slowdown in growth, we expect the MPC to cut rates at the June meeting. The continued focus on reforms by the Government and easing financial conditions are likely to support growth in the second half of the current fiscal," he adds.

Cheaper interest rates may not directly excite the average Joe, but what might is a significant boost in employment and uptick in income. The corporate sector on the back of a good first quarter in the new fiscal could pass-on income related benefits to its employees. Can this narrative hold ace in an era of intense volatility? What reforms will the Modi 2.0 deliver during the budget? Will India Inc get to see corporate taxes getting slashed? Will Finance Minister Nirmala Sitharaman offer the middle-class sufficient relaxations to soothe the pain of job-loss? And would those budgetary reforms help improve investments and spur more jobs?

The Union budget will be announced on July 5 2019. Do drop in your thoughts in the comments section below.

A detailed copy of the GDP numbers is available on the MOSPI website.

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