GDP grows 4.7%, govt says it has bottomed out and will rise
The Indian economy grew at 4.7% in the quarter ending December 2019, according to data released by the National Statistical Office (NSO) on Friday. This is in keeping with a Bloomberg poll of economists.
Experts are sceptical about the performance in the current quarter, as disruptions from the coronavirus outbreak threaten global economic activity. India’s benchmark stock index lost 3.64% on Friday after coronavirus fears spooked investors around the world.
Economic affairs secretary Atanu Chakraborty admitted: “Coronavirus is an unfolding story.”
Commenting on the numbers, he said, “Sustained improvement in agriculture and services continue to drive the growth. The turn-around in composite eight core industries index in December 2019 and January 2020 bodes well for the manufacturing sector.”
The index of eight core sector industries expanded by 2.2% on a year-on-year basis in January.
“We have already bottomed out,” Chakraborty told reporters after the release of the two data.
The debate on whether or not the economy has bottomed out is, however, likely to get more complicated with the latest figures. This is because a downward revision in 2018-19 GDP numbers is pushing up this year’s GDP growth figures. The 4.7% GDP growth in the December quarter is a 20 basis point (one basis point is one hundredth of a percentage point) improvement over the 4.5% GDP growth figure for the September quarter, according to NSO’s last release in November 2019.
GDP growth had been falling continuously for six quarters since June 2018, according to earlier statistics. However, revisions in previous year’s GDP statistics – 2018-29 GDP growth rate was brought down from 6.8% to 6.1% -- has changed the scenario. The September 2019 GDP growth has been revised upwards from 4.5% to 5.1% and therefore December quarter’s growth of 4.7% is a 40 basis point reduction over the previous quarter’s figure.
The latest statistics show that the current economic slowdown has been more severe than what was shown by earlier statistics.
(See Chart 1: GDP growth earlier and latest figures)
Key components both in the GDP and Gross Value Added (GVA) figures do not paint a happy picture. Manufacturing has been contracting for two consecutive quarters.
This is also true for Gross Fixed Capital Formation, a measure of investment. The Index of Industrial Production (IIP) had shown positive growth in December 2019 after contracting for four consecutive months. It slipped into contraction mode in January 2020 again. Construction, one of India’s most employment intensive sectors, was virtually stagnant in the December quarter with a growth of 0.3%. While private consumption growth has been increasing in the last two quarters, it is significantly lower than the earlier performance.
(See Chart 2: PFCE, GFCF and GFCE)
The GVA figures do show a steady improvement in agricultural growth. This is expected to increase to 3.5% in the December quarter from 3.1% in the September quarter. “Given anecdotal accounts of crop destruction due to unseasonal rains, the agricultural growth figures do not seem to be credible,” said Himanshu, an associate professor of economics at Jawaharlal Nehru University. “Frequent and drastic revisions in previous GDP statistics are also raising questions on how seriously should we take the first estimates,” he added.
Experts are sceptical about chances of a recovery given the twin impact of Coronavirus and the squeeze on fiscal space available to the government. “The estimates do not take into account the impact of the coronavirus which several companies have reported would have negative impact in Q4 (January-March),” said Madan Sabnavis, chief economist at CARE Ratings.
“With the fiscal deficit number for January showing major slippage, the government has asked departments to cut back on expenses in March which can impact the final growth numbers in Q4 for the segment of public admin and social services,” he added.
DK Srivastava, chief policy adviser, EY India said, “Led by a significant contraction in investment, real GDP growth in 3QFY20 has fallen to 4.7% from its previous peak of 9.4% in 1QFY17. Because of a steady fall in quarterly real GDP growth in FY20, the overall annual GDP growth is estimated at 5% in real terms and at 7.5% in nominal terms. Implied 4QFY20 real GDP growth is at 4.7%, indicating that the current slowdown is likely to continue at least for one more quarter.”
He added: “One positive sign is seen in core IIP which has grown by 2.2% in January 2020.”