India’s Q1 GDP Growth Slows

Indian economy grew at its slowest pace in two years in the April to June quarter, amid sluggish investment and farm output, potentially making the government’s target of achieving 8 per cent growth this year more daunting.

Gross Domestic Product (GDP) in India rose by 7.1 per cent in the first quarter of FY 2016-17 from 7.5 per cent in the year ago period, data released by the statistics office showed.

The previous low was 6.6 per cent GDP growth recorded in the October-December quarter of the 2014-15 fiscal.

The slowdown was primarily attributed to lower activity in farm, mining and construction sectors. Mining dipped into negative territory (-0.4 per cent) and construction disappointed (1.5 per cent). During the same quarter last year, these sectors grew 8.5 per cent and 4.5 per cent, respectively.

The dwindling private investments also took a toll on India’s growth number. The Gross Fixed Capital Formation which is an indicator of investment activity in the economy, fell 3.1 per cent in real terms in the April-June quarter, signaling that the private investment sentiment remained weak. The decline in investment is despite government pushing public investment. This can be due to excess capacity in the private sector and a high level of debt in sectors such as construction and infrastructure.

Private consumption, the major driver of the country’s economy, also grew at a weaker pace of 6.7 per cent against 6.9 per cent, the year before. However, growth in this segment may improve over the next few months in the wake of a better monsoon and increase in the wages.

However, even with lower-than-expected growth, India remains the fastest growing major economy, with China registering 6.7 per cent growth during June quarter. The sectors that supported India’s economic growth included, manufacturing (9.1 per cent) and electricity (9.4 per cent), performing better than the same quarter a year ago. Agriculture and services more or less managed to stay in the positive zone.

Going ahead, good monsoons combined with pay hikes to the central government employees are likely to push economic growth in the remaining quarters of 2016-17.

Latin Manharlal