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Last updated: 05 Mar, 2019  

GDP.Q3.9.Thmb.jpg Renewed growth concerns

GDP.9.jpg
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Bikky Khosla | 05 Mar, 2019

The government last week cut the Gross Domestic Product (GDP) growth estimates for 2018-19 to 7 percent, down from the 7.2 percent attained during the previous financial year. These figures are worrisome. Unlike several previous forecasts made by economists, these estimates clearly point to a loss in growth momentum. Additionally, the five quarter-low 6.6 percent GDP growth rate for the October-December quarter--as shown by the latest figures-- further enhances this concern.

A deeper look at the last week GDP figures shows that farm sector growth is seen at a slower pace at 2.7 percent vs. estimate of 3.8 percent earlier. Similarly, Industry growth is seen slightly slower at 7.7 percent against 7.8 percent estimate earlier while services growth estimate is marginally revised upwards to 7.4 percent. It is, however, good to see gross fixed capital formation or investment growth picking up to 10 percent in FY19 from 9.3 percent in FY18.

Meanwhile, core sector data for January, 2019, released last week by the Commerce Ministry, showed huge deceleration. The output pace of these eight major industries slumped to 1.8 percent in the month, with two largest contributing sectors of electricity and refinery products performing poorly. The index had risen by 6.2 percent during the same period last year. Needless to say, this 19-month low core sector data is worth raising concern.

In the above scenario, it is quite clear that the RBI made the right call last month by changing its policy stance back to "neutral" from "calibrated tightening". If inflation remains under control, there could be a case for RBI to cut rates in the coming days. At the same time, it is equally important that the government urgently takes policy action to arrest likely slowdown in consumption demand. Also, reforms must be carried on to spur activity in all sectors that are currently under-performing.

I invite your opinions.

 
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