GDP growth seen slipping under 5% in Sep quarter; may be in 4.2-4.7% range

A look at six indicators shows all of them have collapsed from positive growth in April to contraction in Sept.

Finance minister Nirmala Sitharaman told the Rajya Sabha on Wednesday the country was not in recession yet, and won’t ever be.A set of data arriving in a day may qualify the statement to some extent. The Ministry of Statistics and Programme Implementation (MoSPI) will release the data on gross domestic product (GDP) for the July to September quarter of the fiscal year 2019-20 (Q2FY20) on Friday.

Raising slowdown concerns, economists whom Business Standard earlier spoke to have concurred on one thing: The growth in GDP in Q2 would be between 4.2 and 4.7 per cent, slower than the 5 per cent achieved in Q1.

The actual data could be more serious as the lowest-ever quarterly growth clocked since 2012-13 (when the new GDP series began) was 4.3 per cent, in the March quarter of FY13, when India was battling high inflation and political turmoil, in addition to pressures from the global economy.

Representative data for the July-September quarter proves their point to a great extent. A look at six indicators — imports, exports, rail freight earnings, electricity and diesel consumption, and overall industrial production — shows that all of them have collapsed from positive growth in April to contraction in September.

These indicators are a collage of manufacturing and services sector indicators in the country, encompassing a substantial part of the economy.

While the growth in Q1 was 5 per cent with positive leading indicators, Q2 has been characterised by all indicators in red. Port traffic too has stagnated, growing 0.4 per cent in the April–October period, entirely brought down by a severe contraction in coal imports.

Growth in consumption of fast-moving consumer goods, such as shampoo sachets and coconut oil, has weakened to 2 per cent in Q2FY20, with the stress concentrated in north Indian states.

Shubhada Rao, chief economist at YES Bank, told Business Standard that except services propelled by the government’s budgetary funding, all the sectors of the economy are a drag on growth in the September quarter.

But she also said that the Indian economy is going through a transition phase, and some near-term impact was expected.

At 6%, UN body projects 7-year low GDP growth for India in 2019

The UN body also pointed towards challenges in meeting sustainable development goals (SDGs) at a time when private debts are rising globally.

The United Nations Conference on Trade and Development (UNCTAD) has pegged India’s economic growth rate at a seven-year low of 6 per cent in calendar year (CY) 2019. It also highlighted the pitfalls of shadow banking in countries such as India and China, citing the example of Infrastructure Leasing & Financial Services (IL&FS).

The UN body also pointed towards challenges in meeting sustainable development goals (SDGs) at a time when private debts are rising globally.

India’s economy grew 7.4 per cent in CY18. It grew below 6 per cent in 2012 — called the policy paralysis year — under the UPA 2 government.

“Growth projections for India have been marked down because of a sharp fall to 5.8 per cent in the first quarter of CY19 (relative to the corresponding quarter of the previous CY),” said UNCTAD in its trade and development report for 2019.

It should be noted that UNCTAD did not take into account an over 6-year low economic growth rate of 5 per cent that the country recorded during the second quarter of CY19.

Highlighting the risks of shadow banking, it said such institutions were fragile alternatives to public banks and development finance institutions, as the roles of the latter were reduced or done away with, as part of liberalisation.

Quoting a study, UNCTAD said an example of this development was Infrastructure Leasing & Financial Services (IL&FS), which sourced capital using short-term instruments such as commercial papers (CPs) to fund long-term investments.

This maturity mismatch did not prove to be a problem initially, because of the presumption that being a government-sponsored entity, it enjoyed sovereign guarantee.

Owned one-third by state-owned financial entities, IL&FS was one of the largest issuers of CPs and enjoyed a triple-A credit rating.

However, by August 2018, it suffered a series of bond defaults by group entities, leading to a change in management, legal proceedings, and a painful restructuring of the company that is still in progress, UNCTAD said.

The report also highlighted concerns over SDGs. It said these concerns were compounded by the dizzying rise in debt levels to a scale similar to those seen before the financial crisis.

Business Standard