GDP growth slows to 7% in April-June quarter

  • HT Correspondent, Hindustan Times, New Delhi
  • Updated: Aug 31, 2015 19:14 IST

India’s economy seemed to sputter as latest data on Monday showed that gross domestic product (GDP) grew 7% during April-June slower than the previous quarter’s 7.5% expansion amid worrying symptoms of weak investment and consumer spending.

Growth in India’s “real” or inflation-adjusted GDP—the total value of all goods and services produced in the country--- was exactly similar to China’s 7% so far this year, implying that India will need to grow much faster in the coming months to outpace its giant neighbour, whose recent shocks have sent ripples across the world economy, as the world’s fastest growing major economy.

The national income data, measured by a controversial formula that covers a raft of activities from farm livestock to mega infrastructure projects, showed that manufacturing sector grew at 7.2% during the first quarter of 2015-16, slower than the 8.4% expansion in the previous quarter as also in April-June last year.

A separate set of data, also released on Monday showed that infrastructure sector growth slowed to 3-month low of 1.1% in July this year, compared to 4.1% growth in the previous year, as output of crude oil, natural gas and steel contracted.

Inflation-adjusted private final consumption expenditure (PFCE), a metric to gauge family spending, stood at 58.7% of GDP in during the quarter, barely higher than the previous year’s 58.5%.

Shop-end data also show that households were 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 in 2015-16 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.

“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.”

Economists expect the recent interest rate cuts and low inflation to push household spending aid a turnaround in the broader economy.

“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.

Farm income barely grew at 1.9% during the quarter compared from the previous quarter’s 1.4% contraction, hit by a lingering bad winter of hailstorms and unseasonal rains in March. The agriculture sector had grown by 2.6% during April-June last year.

It could get worse in the coming quarters hit by a below-normal monsoon for the second consecutive year this year that 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 sustain the recovery in Asia’s third largest economy.

The feeble growth in consumer purchases may have forced many companies to defer adding capacity lines.

Inflation-adjusted gross fixed capital formation (GFCF), a proxy to measure firm-level investment activity, slowed down to 29.8% of GDP in April-June this year, compared to 30.4% in the same quarter of the previous year.

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