Growth pangs: Q4 GDP growth slows to 3.1%; FY20 clocks 4.2%

Growth outlook

Indian economy beat expectations during January-March quarter of fiscal year 2019-20 (FY20) by registering gross domestic product (GDP) growth of 3.1 per cent.

However, the bad news is that this is the 44-quarter low with the previous low of 0.2 per cent recorded during January-March quarter of FY08-09.

Given this and the revision in the growth rate of three quarters (April-June, July-September and October-December) of FY20, the annual GDP growth rate was 4.2 per cent against 6.1 per cent during 2018-19.

However, experts cautioned that headline growth number may not have sloped sharply, but the core gross value added (GVA), excluding agriculture, public administration and defence), slipped at a much rapid pace to 2.8 per cent during FY20 against 6.2 per cent during FY19, and a high of 10.1 per cent during FY16. There is need to give a big push to this rate for speedy revival in the coming years.

Devendra Kumar Pant, Chief Economist with India Ratings, said in annual growth terms, the FY20 GDP growth was nearly half of FY17 (8.3 per cent) and, on a quarterly basis, the growth declined from a recent peak of 5.7 per cent in Jan-March quarter of FY19 — a 260 basis points decline in four quarters is steep. Looked at from an annual or quarterly basis, economic activities have slowed down considerably. From the production side, agriculture and government spending have been the saviours and helped achieve 3.9 per cent GVA growth in FY20 (lowest in FY12 base).

Higher growth of public administration is also reflected in the expenditure side GDP — government final consumption expenditure grew at 11.8 per cent, same as FY18 and highest in FY12 base series. Although the private final consumption expenditure (PFCE) growth declined to 5.3 per cent in FY20 from 7.2 per cent in FY19, it still contributed 71.5 per cent to FY20 growth, followed by government expenditure (29.7 per cent). Low demand due to stagnant manufacturing and weak commodity prices helped in net exports contributing 21 per cent to FY20 growth.

According to Pant, going forward, with private expenditure growth dwindling due to shutdown and labour migration; investment demand contracting as a result of weak consumption demand and stretched corporate balance sheet; government expenditure will again be the growth engine in FY21. “Weak commodity prices and import demand will also provide some support to growth. Despite this, economy will contract in FY21 after FY20,” he said.

Former Finance Minister P Chidambaram said GDP forecast is a telling commentary on the economic management of the BJP government. “We had forecast that GDP for Q4 will touch a new low at below 4 per cent. It has turned out to be worse at 3.1 per cent. Remember, this is pre-lockdown. Of the 91 days of Q4, lockdown applied to only to 7 days,” he said.