India GDP growth slows down significantly

India's GDP growth plunged to 20-quarter low to 5.8% in Q4 FY19. With this, the full year FY19 GDP growth comes to 6.8% (5-year low) compared 7.2% in FY18. GVA growth for FY19 stood at 6.6% compared to 6.9% in FY18. The deceleration in growth is primarily due to low growth in Agriculture, Mining & quarrying and Public administration, defence and Other services 
GDP components
  1. Agriculture and Allied Activities grew at 2.9% in FY19, compared to last year growth of 5.0%. In Q4, the sector registered negative growth of 0.1% as against 6.5% growth in Q4 FY18. However, the projection of just-normal monsoon this year boosts the outlook of this sector for FY20. 
  2. Industry grew by 6.9% in FY19 from 5.9% in FY18, owing to significant growth in construction and manufacturing. However, the Q4 growth in Industry was only 4.2% compared to 8.1% in Q4 FY18. 
  3. Manufacturing GVA, which grew by 12.1% in Q1, has decelerated sharply since then and grew by merely 3.1% in Q4. This is expected, as based on the published Q4 FY19 results of 932 listed corporates, around 550 companies had reported either negative or single digit revenue growth. However, for the whole year, manufacturing GVA grew by 6.9% compared to 5.9% in FY18. 
  4. Construction sector recorded smart growth of 8.7% in FY19 compared to 5.6% in FY18, though Q4 growth (7.1%) was lowest among all the four quarters. 
  5. Mining and quarrying registered a slow growth of 1.3% in FY19 compared to 5.1% in FY18.  
Services sector, the saving grace.
  1. In services, however, Q4 grew at a better pace than the other 3-quarters in FY19. While, in FY19 the services growth declined to 7.5% from 8.1% in FY18. The sub-sectors indicate a mixed trend. Trade, Hotels, Transport, Communication and Broadcasting have shown a declined growth of 6.9% against previous year growth of 7.8% whereas 'Financial, Real Estate and Professional Services' has shown a growth rate of 7.4% as against previous year’s growth rate of 6.2%. Among the other Services sectors, the key indicators of Railways, namely the Net Tonne Km and Passenger Km, have shown growth rate of 6.6% and 1.3% respectively during 2018-19.
Fiscal consolidation priority
  1. On the fiscal front, the latest data shows that the Government has been able to meet the revised fiscal deficit estimate of 3.4% of GDP. However, there has been Rs 1.45 lakh crore reduction in expenditure with Rs 69,140 crore cut in subsidies (major cut in food subsidy of Rs 69,394 crore), covering for Rs 1.57 lakh crore reduction in total receipts. Now that FY19 estimates are revised, the FY20 BE seems to be on the higher side. Given growth slowdown that the country is facing, the question arises whether the Government should continue to focus on fiscal consolidation path or keep the deficit numbers constant for the next two years before reducing it further and try to propel growth. 
Bank Credit picking up
  1. After remaining depressed for nearly two years, bank credit has picked up momentum in FY19. The Indian banking industry’s total credit increased by 13.3% in FY19, its highest level in the last five years, compared to last year’s growth of 10%. 
  2. The sector-wise incremental credit in April’2019 indicate that there is a decline in credit in almost all sector from the March end level, which is a general trend in April of every year.   

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