The recently released data of country's economic growth once
again highlighted that the current slowdown may not be entirely cyclical and it
may have some element of structural weakness in the economy. In particular, the
continued weakness in investment activities is worrisome. Also, sharp fall in
nominal growth and poor growth in per capita income does not augur well for the
midterm growth prospects. The latest PMI and employment data for February
indicates that the slowdown continues in the current quarter also.
The second advance estimate for FY20 GDP growth is now 5% (vs.
6.1% in FY19). Per capita GDP is now expected to grow at 3.9% in FY20 (vs 5.1%
in FY19).
In the reporting quarter (3QFY20)—
- The production of coal (-4.3% yoy), Crude oil (-6.2% yoy), Natural Gas (-6.6%, yoy), and Commercial vehicles (-17.3%, yoy) recorded significant contraction.
- Overall manufacturing activities contracted 0.3% yoy.
- The private consumption at 62.4% of GDP in 3QFY20 was highest in recent years, while the investment at 26.1% of GDP was lowest in recent years.
- Railways (-4.7% yoy) and air cargo (-7.2% yoy) recorded negative growth, while marine cargo recorded a nominal growth of 0.1%.
- The Consumer Price Index (CPI) was higher by 5.8% yoy, while Wholesale Price Index (WPI) was higher by 1% yoy. Consequently, the nominal growth for the quarter was also lower at 7.7%. As per the latest official estimates, nominal GDP is expected to grow @ 7.5% in FY20 (vs 11% in FY19). This is a massive one third fall in nominal GDP growth. Per capita nominal GDP growth for FY20 is now estimated at 6.3% (vs 9.9% in FY19).
It is pertinent to note that the finance minister assumed over
10% nominal growth for FY21 in her budget assumptions, which is massive 30%
growth from 3QFY20 level. The nominal GDP is important because the household
disposable income, corporate profitability and government tax revenue are
directly affected by the nominal GDP growth.
- The foreign trade recorded sharp deceleration. The share of imports in GDP has contracted to 21.9% in 9MFY20, (vs 24.9% in 9MFY19), while exports in the same period decelerated to 19.6% from 20.9%.
- Agriculture sector GDP growth of 3.5% (yoy) during 3QFY20 is a relief. This marked third straight sequential growth for farm sector. However, considering very low base (2% in 3QFY19), it may be little early to celebrate the end of rural stress.
- The nominal growth of 13.7% in farm sector (vs 2.3% in 3QFY19) was even more encouraging.
- The population growth trend was declining since FY14. However from the current year FY20 this trend is estimated to have reversed as the population is forecast to rise to 1.341bn by March 2020 against 1.327bn a year ago, registering a growth of 1.1% (vs 1% in the previous year). This explains faster deterioration in per capita numbers of GDP.
- The bank deposit growth has accelerated in FY20 from last year. The deposits grew 9.8% in 9MFY20 (vs 7.9% in 9MFY19). The bank credit however declined materially in this period from 12.4% in 9MFY19 to 9.2% in 9MFY20.
In 3QFY20 particularly, bank credit declined to 7% (vs 13.9% in
3QFY19), while deposits grew 9.7% (vs 8.9% in 3QFY19). This is a rather
worrisome trend from bank profitability as well as over GDP growth perspective.
