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India’s GDP growth ‘much weaker’ than expected: IMF

Various domestic and foreign analysts have trimmed their India forecasts for the current fiscal, with some pegging it at below 6.5%. (Reuters)

India’s economic growth is “much weaker” than expected, thanks to corporate and environmental regulatory uncertainty and weaknesses in the shadow-banking sector, the International Monetary Fund has said, reinforcing fears of a protracted slowdown.

The country’s GDP growth hit a 25-quarter low of 5% in the April-June period, according to official data. In its July forecast, the IMF had pegged India’s FY20 growth at 7%, having cut it from 7.3% projected in April, although India will still be the world’s fastest-growing major economy, it had said. However, its latest assessment indicates the multilateral body will likely trim its India growth forecast again in October when it will update its projections for global growth. Various domestic and foreign analysts have trimmed their India forecasts for the current fiscal, with some pegging it at below 6.5%.

“We will have a fresh set of numbers coming up, but the recent economic growth in India is much weaker than expected, mainly due to corporate and environmental regulatory uncertainty and lingering weakness in some non-bank financial companies,” IMF spokesman Gerry Rice said. The risks to the outlook are tilted to the downside, he added. “We will update that assessment in the upcoming world economic outlook.”

Although the economy’s sharp slowdown in the June quarter was on an unfavourable base (Q1FY19 saw 8% GDP expansion), but it was also broad-based. Worse, private consumption, the main engine of the economy, appeared to have suffered the biggest blow with year-on-year growth of just 3.1% (the lowest since Q3FY15). There has been a swift slide in private consumption since the second quarter of last fiscal when it grew at 9.8%.

Growth of gross value added (GVA) in manufacturing also nosedived to 0.6% in Q1FY20, compared with a rather strong 12.1% in the year-ago quarter and 3.1% in Q4FY19. Construction GVA grew just 5.7% in Q1FY20 versus 9.6% in the year-ago quarter.

While an investment-led revival is the government’s stated goal, the gross fixed capital formation, a close proxy of investment, grew at a lackadaisical 4% in Q1, only marginally higher than 3.6% in Q4FY19. The big growth slowdown over the last two quarters was despite the fiscally stressed government continuing to pump-prime the economy via budgetary and extra-budget expenditure — during Q4FY19 (when GDP expanded at a 5-year low rate of 5.8%), the government’s final consumption expenditure grew a strong 13.1% and the momentum was somewhat maintained with an 8.8% growth in Q1FY20.

Source: Financial Express