In what is likely to disappoint investors and the government, India’s latest quarterly GDP growth has slowed sharply to 6.1 per cent from 7 per cent the previous quarter, clocking the slowest growth rate in two years.
As a result, India has lost its coveted title of fastest growing economy in the world, falling behind China, which posted GDP growth of 6.9 percent for the first quarter in 2017.
For the March quarter, India’s GDP grew 6.1 per cent from a year earlier, substantially down from a provisional 7% growth in the previous quarter. The growth was significantly below the 7.1 percent forecast by economists in a Reuters poll. It is also the the lowest since 6 per cent growth posted in the December quarter in 2014, according to Reuters data.
For the full year 2016-17 fiscal year ended March, India clocked 7.1 percent growth, down from 8 per cent a year ago. The annual growth rates matched expectations by analysts polled by Reuters as well as official estimates.
The latest GDP numbers were dragged down heavily by a slowdown in construction, manufacturing and trade services sectors. Construction activity contracted 3.7 percent year-on-year in the latest quarter swinging from growth of 3.4 percent growth in the previous quarter.
Manufacturing grew 5.3 percent in the last quarter from a year ago, significantly slower than 8.2 per cent growth in the quarter ended December 31.
Services sector also showed weak growth, growing at 2.2 per cent compared to previous quarter. Agricultural sector showed some stability, growing at 5.2 per cent.
Annual growth in trade, hotels and transport services slowed to 6.5 percent in the January-March period from 8.3 per cent from last year.
The latest GDP numbers are based on a new series of Index of Industrial Production (IIP) and Wholesale price Indices(WPI), released by the government’s Central Statistical Office, and the Office of Economic Advisor, Department of Industrial Production earlier this month. As a result quarterly estimates of GDP of the previous years along with the first, second and third quarter estimates of 2016-17 have undergone a revision.
Declining Per Capita Income
India’s per capita income growth (in real terms) sharply fell to 5.7 per cent during 2016-17, as against 6.8 percent in the previous year. The per capita income in real terms (at 2011-12 prices) during 2016-17 is estimated to be Rs 82,269 compared to Rs 77,803 for the year 2015-16.
Private Consumption Hit
The private consumption expenditure (at constant prices) for the full fiscal year also slowed down to 55.8 per cent from 55 per cent the previous year. As a percentage of GDP, gross fixed capital formation and private consumption for the quarter slowed down to 28.5 per cent and 57.3 per cent respectively compared to previous year. That shows possible hit by demonetisation exercise.
India’s previous quarterly GDP estimates had cast a shadow of doubt over data collection methods as the country showed surprisingly strong numbers despite the visible shock of demonetisation, which effectively banned 86 per cent of the country’s currency in circulation, and remonetisation was slower than expected.
“This data is closer to the ground reality than the previous ones,” Anjali Verma, an economist at PhillipCapital in Mumbai, told Reuters.
The latest GDP data could end up being a major upset for Prime Minister Narendra Modi, who has just finished three years in office.