India's GDP growth slips to 6-year low of 5% in April-June quarter

India's economy grew by merely 5 per cent in the April-June quarter, down from 5.8 per cent in the previous quarter, according to GDP data released by National Statistical Office (NSO) on Friday. Registering a continuous downward spiral, the GDP growth for the first quarter of FY20 has been slowest in more than six years. The previous low in GDP growth was recorded at 4.3 per cent in the January-March quarter of 2012-13.

"GDP at Constant (2011-12) Prices in Q1 of 2019-20 is estimated at Rs 35.85 lakh crore, as against Rs 34.14 lakh crore in Q1 of 2018-19, showing a growth rate of 5.0 percent," a government statement said.

The less-than-anticipated GDP growth rate puts further pressure on the Modi government to announce meaningful reforms that can bring back the economy on growth trajectory. Finance Minister Nirmala Sitharaman held a press conference today, to address economic slowdown in which she announced multiple mergers of public sector banks. She said the move was aimed at improving liquidity and enhancing economic growth. Sitharaman had held a similar press conference last week where she announced a slew of measures to revive economy.

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Sitharaman's ministry may be particularly worried about the manufacturing sector which is the lead element in dragging the GDP growth down, as indicated by latest data. The manufacturing sector took a massive hit as its GVA (Gross Value Added) at basic prices grew by only 0.6 per cent during Q1 FY20, as compared to 12.1 per cent in Q1 FY19. Similarly, 'agriculture, forestry and fishing' also registered a dip in growth rate to 2 per cent from 5.1 per cent during the year ago period. 'Construction' sector grew at 5.7 per cent in Q1 FY20, as against 9.6 per cent during Q1 FY19.

Meanwhile, 'mining and quarrying' sector registered a rise in growth rate to 2.7 per cent during the period under review, in comparison to 0.4 per cent during Q1 FY19. The economic activities which registered growth of over 7 percent in Q1 of 2019-20 over Q1 of 2018-19 are 'Electricity, Gas, Water Supply & Other Utility Services', 'Trade, Hotels, Transport, Communication and Services Related to Broadcasting' and 'Public Administration, Defence and Other Services'.

Worse than anticipated

Various economists and surveys had predicted a decline in the GDP for the June quarter. But the GDP growth rate of 5 per cent remained well below even these estimates. India Ratings and Research Pvt Ltd had expected the Q1 GDP numbers to plunge to 5.7 per cent. Reuters' poll had said the Indian economy would grow at a year-on-year pace of 5.7 per cent in the June quarter.

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HDFC Bank had said the April-June GDP growth could be 5.2 per cent, while Axis Bank predicted the June quarter GDP at 5.4 per cent. A Bloomberg poll, which surveyed 30 economists, had forecast the GDP growth at 5.7 per cent for the June quarter.

In its yearly GDP forecast, Moody's Investors Service had recently revised India's GDP growth for FY20 at 6.2 per cent, saying the economy remained sluggish due to a combination of factors such as weak hiring, distress among rural households and tighter financial conditions.