Gross Domestic Product (GDP) for April-June 2019-20

India's GDP growth further slumped to a 6-year low of 5% in April-June 2019-20.

India's Gross Domestic Product (GDP) growth slipped further to 5% YoY in Q1: 2019-20, regardless of the monetary easing and the measures announced so far by the government to support the economy. The six-year low growth of 5%, was primarily driven by weaker growth in private consumption and manufacturing. Given the indications witnessed by the economy in the past few months, the growth in GDP was expected to be slow. However, it is far below the market estimates of 5.7% YoY. (Reuters poll). The Reserve Bank earlier in its August policy, marginally lowered the GDP growth projection for 2019-20 to 6.9% from 7% projected in June previously.

The growth in private final consumption expenditure which is the mainstay of economic growth in India continued to fall and reached a 9-quarter low of 3.1% YoY in Q1:2019-20. A lower rural income due to a sharp fall in food inflation in most of the last fiscal year may be the key reason behind slowdown in private consumption. However, a favourable monsoon so far this year and a turnaround in food inflation could lead to improved rural income. This, coupled with the festive season in the coming months, is expected to bring some pickup in the domestic demand.

In terms of output growth, the gross value added (GVA) at basic prices declined to 4.9% YoY in Q1FY19 as against 7.7% YoY in the year-ago period. The slowdown was led by a lower growth in manufacturing, agriculture, and construction activity. The GVA from manufacturing sector growth came to as low as 0.6% YoY.

We believe that trade wars and the global slowdown will continue to provide headwinds to India's economic growth. However, the slew of measures introduced by RBI and the government has signalled the government's intention to revive the economy. Given the seasonal factors and the favourable base effects in H2:2019-20, the pace of expansion in GDP growth is expected to rise in subsequent quarters. Still, at least 8% growth would be needed in the last two quarters to reach the RBI's set target of 6.9% for 2019-20, which seems like an uphill task.