Govt. cuts FY19 growth estimate to 7%; Q3 growth estimated at six-quarter low; agriculture, manufacturing contribute to slowdown

GDP growth slowed for the third consecutive quarter in the October-December 2018 period, according to data released on Thursday. Growth fell to 6.6% in the third quarter, the lowest in the last six quarters.

The slowdown was led by agriculture, which is estimated to grow at 2.7%, against the earlier estimate of 3.8%.

Data showed that the GDP growth slowed for the third consecutive quarter in the quarter ended December 2018 to 6.6% — a six-quarter low — from 7% in the second quarter and 8% in the first quarter of this financial year.

The slowdown in 2018-19 is due to a lowering in the growth estimate of the agriculture sector to 2.7% as per the latest data compared with the 3.8% estimated earlier. The manufacturing sector, too, is estimated to grow at a marginally lower 8.1% compared with the previously predicted 8.3%.

“FY19 GDP growth in second advance estimate of national income is lowered to 7% from 7.2% in first advance estimate,” Devendra Kumar Pant, chief economist, India Ratings and Research, said.

“The primary reason for this is the upwards revision in FY18 GDP growth rate in the first revised estimate [released on January 31, 2019] to 7.2% from 6.7% earlier.”

The two notable divergences between the second estimate and the first are that private final consumption expenditure growth has been revised upwards to 8.3% from 6.4% and investment growth was revised lower to 10% from the earlier estimate of 12.2%.

The government revised downwards its estimate for GDP growth in the 2018-19 financial year to 7% from the 7.2% estimated in the first estimate for the year released in January.

Nominal GDP

Economists point out that the size of the economy in terms of nominal GDP is now estimated to be ₹190.54 lakh crore, up from the ₹188.41 lakh crore estimated earlier.

This, they said, will go a long way in helping the government meet its fiscal deficit target of 3.4% of GDP for the year.

On a quarterly basis, the agriculture sector is estimated to have grown at 2.7% in the third quarter of this financial year, compared with a 4.6% growth in the same quarter of the previous year.

The manufacturing sector grew at 6.7% in the third quarter, down from 8.6% in the December quarter of 2017-18.

The mining sector, too, saw growth slowing in the third quarter to 1.3% compared with 4.5% in the third quarter of the previous year.

“[The] FY19 GDP growth at 7% is the lowest in last five years and the third quarter FY19 growth at 6.6% is a six-quarter low,” Mr. Pant added.

“This indicates that the economy is losing steam. Based on the revised first three quarters and annual numbers, Ind-Ra’s calculation shows that the GDP growth in Q4 has to be 6.5% to attain overall 7.0% growth in FY19.”

This is possible, Mr. Pant added, but will be largely dependent on whether exports can grow strongly in the fourth quarter, which looks difficult.