InvestorQ : What is the reason for the sharp fall in GDP in the June quarter?
prachi Patwardhan made post

What is the reason for the sharp fall in GDP in the June quarter?

Riya Dwivedi answered.
3 years ago

The slowdown has finally hit the economy where it hurts. The GDP for June quarter fell to a 7 year low of just 5% and this follows a weak 5.8% recorded in the March quarter. At this rate, the economy will have to grow by over 8% in the last two quarters if India has to reach the targeted rate of 6.9% a projected by the RBI. This has pushed India below China, Indonesia and Hungary in the global GDP growth sweepstakes. Here are the highlights you need to know about the GDP growth rate announcement.

· This is the slowest GDP growth in the last over six years. The GDP growth rate was 8% during Q1 2018-19 and from that level it has fallen to 5% in this quarter; marking a fall in the GDP of 3% in just the last one year.

· Even on a sequential basis, the growth rate came lower than the 5.8% in Q4 of 2018-19. In fact, the fourth quarter ended March was supposed to be an exception and this time around it has been worse than that.

· As reported by the National Statistical Office (NSO), 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, indicating a growth of just 5%. However, it needs to be noted that if the base year had not been changed, the growth may actually have been worse than this.

· Another reliable measure of growth is GVA or the gross value added. This excludes the impact of taxes and subsidies to give a better picture of growth. The GVA for the June quarter came in still lower at 4.9% compared to 7.7% during the first quarter of last year.

· The activities that registered growth of more than 7% included Electricity, Gas, Water Supply and Other Utility Services. In addition, trade, hotels, transport, communication and Public Administration and Defence also registered strong growth. Thus the growth continues to be driven by government spending substantially.

· Let us look at the specific sub segments of the GDP mix. Agriculture, Forestry and Fishing grew at just 2% and that is a major worry. The agri growth was 5.1% in the first quarter of last year.

· The GVA of the manufacturing sector, which is the largest component, grew at a paltry 0.6% as compared to 12.1% in the previous fiscal. Even the mining and quarrying sector, an important input sector for manufacturing did not do too well.

If you look at the last five quarters of GDP growth, it has come in at 8%, 7%, 6.6%, 5.8% and 5% showing a clear downward trend. That is what the government needs to address.