BL Research Bureau

The Central Statics Office (CSO) is likely to release the GDP growth data for the April-June quarter (Q1) soon. GDP growth had fallen sharply in the March quarter of FY19 to 5.8 per cent (in real terms)-- a 20-quarter low, led by slowdown across agriculture (negative growth), manufacturing, construction and trade. With concerns over growth only accentuating in the past few months, will GDP growth slip below the 5.8 per cent mark in the June quarter?

Several indicators point to a further slowdown in growth. The index of industrial production (IIP) for instance decelerated in April-June quarter, led by manufacturing and mining. IIP grew by 3.6 per cent in Q1 of 2019-20 as against 5.1 per cent in the same quarter last year. Consumer durables production and capital goods contracted in the April-June quarter which is a concern.

As the RBI’s annual report points out, while the persisting weakness in capital goods production has always raised concerns over the investment slowdown, the subdued performance of consumer non-durables of late is a cause for worry. A look at the sectoral deployment of credit statistics shows that credit to consumer durables shrunk by a whopping 71 per cent as of June. Vehicle loan growth has slowed considerably to 5 per cent.

The capex cycle also continues to remain subdued---credit growth to industry is still in single-digits.

A sombre picture

GDP growth fell sharply in the March quarter of FY19 to 5.8 per cent (in real terms). There has been a sharp deceleration in growth in agriculture, manufacturing and construction over the past 4 quarters. Of particular worry is the steep fall in growth of gross fixed capital formation to 3.6 per cent in the March quarter (from 11-13 per cent in the previous quarters).

Indicators of gross fixed capital formation have seen either moderation or contraction in Q1, with production of capital goods, cement and steel consumption slowing in the Apr-June quarter, also highlighted in the RBI’s annual report.

According to data put out by CGA, revenue expenditure by the government in Q1 is a muted 6 per cent. According to RBI, if interest payments and subsidies are excluded then it is lower at 1.7 per cent. The slowdown is sharper in the case of state governments, RBI states.

With consumption remaining weak, and sluggishness in private investment activity, GDP growth could well dip below the 5.8 per cent mark in Q1.

RBI’s ‘nowcasting’

In a bid to provide an early estimate--- quarterly GDP is published with a 7-8 weeks lag ---RBI has come out with a new index in its annual report. Known as Coincident Economic Indicator for India (CEII), it is constructed based on economic indicators which correlate strongly with the dynamics of GDP growth. Two indices are considered – a 6-indicator CEII comprising the production of consumer goods, non-oil non-gold imports, auto sales, rail freight, air cargo, and government receipts, and a 9-indicator CEII, which additionally includes IIP-core, exports, and foreign tourist inflows.