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Q1 GDP Numbers Tell The Same Story; India Is Seriously Slowing

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The Central Statistics Office released the GDP numbers for the first quarter ending June 30, 2019, which came in at a 6-year low of just 5 per cent.

GDP numbers were a real shocker. Growth was expected to be slow, as high frequency indicators clearly pointed in that direction, but, not so low. Just consider manufacturing, which grew at just 0.6 per cent, as compared to a huge 12.1 per cent in Q1 2018-19.

 

A dramatic fall in consumption, slowing private sector investment, subdued services sector growth have all contributed to the slowing GDP numbers.

 Q1 GDP Numbers Tell The Same Story; India Is Seriously Slowing

Private investment and consumption not picking up

One of the prime reasons for the poor GDP numbers is that consumption and private sector investment is just not picking-up. Why would a corporate want to invest, when consumption is sagging. An entrepreneur is only likely to invest when he sees consumption intact and growing really fast. Consumption on the other hand is likely to increase when there is more income in the hands of an individual and at the moment, that is not happening.

Joblessness has been a major issue, and there are now worries that there would even be retail loan defaults, because of job losses. From aviation to telecom to auto, there have been job losses and now there are reports that it is spilling to FMCG companies, like those manufacturing biscuits. Consumption has been certainly hit and hit badly.

Lowering GDP forecasts

Many leading rating agencies and brokerage firms have already reduced their GDP estimates for 2019-20. Goldman Sachs recently highlighted the fact that the slowdown has now lasted for more than 18 months.

"GDP will grow at a six-year low of 6.7% in the current financial year due to weak consumption demand, uneven monsoon, and (a) slowdown in manufacturing growth," India Ratings and research said recently.

 

Even the Indian stock markets, which have remained resilient in the past, have cracked under pressure. The Nifty is down nearly 9 per cent from historic highs.

Clearly, the need of the hour is creating more jobs by attracting investment, be it foreign or domestic. The government would need to go out and spend, and stimulus may just be the way to go about.

The silver lining

The one silver lining for the economy is that there could be hopes of a stimulus given that the RBI would transfer Rs 1.7 lakh crores to the government. However, one is not sure, if the government would use the resources to grant a stimulus package or to trim the fiscal deficit. In any case, the transfer has come at just the right time, when the government needed it the most.

How far will the slowdown last?

The one problem during a slowdown is that the a consumer prefers to save than spend, which only aggravates the situation. The worries over a job loss means that his or her mindset is to save, which only adds to the consumption problem. The right measures now would be to boost consumption through various sops, including a GST revision in select sectors like auto, quick payments in government projects to ease liquidity, front loading of infra spending and further easing of FDI rules in select sectors. There must be a fresh new impetus given to the construction and housing space, given that it employs millions of people.

At the moment, "band-aid" measures will not work.

GoodReturns.in

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