Indian GDP growth slows down over virus impact

India’s economy expanded at its slowest pace in more than six years in the last three months of 2019, with analysts predicting further deceleration as the global coronavirus outbreak stifles growth in Asia’s third-largest economy.

The gross domestic product (GDP) data released on Friday showed government spending, private investment and exports all slowing, while a slight upturn in consumer spending and improvement in rural demand lent support.

The quarterly figure of 4.7% growth matched the consensus in a Reuters poll of analysts but was below a revised - and greatly increased - 5.1% rate for the previous quarter.

The central bank has warned that downside risks to global growth have increased as a result of the coronavirus epidemic, the full effects of which are still unfolding.

“So far as the impact (of coronavirus) on India is concerned we will take some more time to arrive at more accurate conclusions, but coronavirus is definitely going to pull down global growth,” Shaktikanta Das, governor of the Reserve Bank of India (RBI), said in Mumbai on Friday.

Prime Minister Narendra Modi’s government has taken several steps to bolster economic growth, including a privatisation push and increased state spending, after cutting corporate tax rates last September.

In its annual budget presented this month, the government estimated that annual economic growth in the financial year to March 31 would be 5%, its lowest for 11 years.

Modi’s government is targeting a slight recovery in growth to 6% for 2020/21, far below the level needed to generate jobs for millions of young Indians entering the labour market each month.

The annual GDP figure for the September quarter was ramped up from an earlier estimate of 4.5%, while the April-June reading was similarly lifted to 5.6% from 5%, data released by the Ministry of Statistics showed on Friday.

In the December quarter, private investment grew 5.9%, up from 5.6% in the previous quarter, while government spending rose by 11.8%, against 13.2% in the previous three months.

However, corporate capital investment contracted by 5.2% after a 4.1% decline in the previous quarter, indicating that interest rate cuts by the central bank have failed to encourage new investment. Manufacturing, meanwhile, contracted by 0.2%.

“It appears growth slowdown is not just cyclical but more entrenched with consumption secularly joining the slowdown bandwagon even as the investment story continues to languish,” said Madhavi Arora of Edelweiss Securities in Mumbai.

Many economists said that the government stimulus could take four to six quarters before lifting the economy and the impact of those efforts could be outweighed by the global fallout from the coronavirus epidemic that began in China.

“The coronavirus remains the critical risk as India depends on China for both demand and supply of inputs,” said Abheek Barua, chief economist at HDFC Bank. Indian shares sank on Friday for a sixth session running, capping their worst week in more than a decade.

The NSE Nifty 50 index shed 7.3% over the week, while the Sensex dropped 6.8%, the worst weekly declines since the 2008-09 financial crisis.

Separately, India’s infrastructure output rose 2.2% year on year in January, data showed on Friday.

A spike in inflation to a more than 5-1/2 year high of 7.59% in January is expected to make the RBI hold off from further cuts to interest rates for now, while keeping its monetary stance accommodative.

The coronavirus remains the critical risk as India depends on China for both demand and supply of inputs. The case for an early rate cut despite adverse inflation optics remains and globally central banks might have to go in for aggressive monetary easing to offset a pandemic led recession.” “With Asia growth being suppressed in 4QFY20 amid COVID-19 impact, external demand spillover to India amid supply disruptions would weigh marginally on India’s near-term growth.” It appears growth slowdown is not just cyclical but more entrenched with consumption secularly joining the slowdown bandwagon even as investment story continues to languish.

Factors including still-tight financial conditions, weakening household and corporate balance sheet, sluggish private capex and lack of business confidence, possible slower public capex amid fiscal constraints continue to weigh and require continued innovative policy levers both from India’s government and the RBI.” “The only silver lining in the overall picture of gloom and doom is the steadily improving growth of agriculture and allied activities. This sector, besides the government spending on public administration, has prevented the growth from sliding further.

Reuters