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September 4, 2019

Cutting GDP growth to 6.3% in fiscal 2020

CRISIL First Cut

Feeble first quarter stunts full-year GDP growth forecast


Fiscal 2020’s first quarter gross domestic product (GDP) growth estimate at 5% - the slowest in 25 quarters - corroborates that India’s economic slowdown is deeper and more broad-based than suspected. While on-ground indicators did suggest that the quarter would look worse than the previous one (at 5.8%), the extent of fall has caught everyone by surprise.


A plunge in domestic private consumption demand, slump in manufacturing, halving of merchandise exports growth, and a high-base effect from last year have gnawed away at first-quarter growth.


Private consumption growth – the bulwark of India’s growth story in recent years – registered a scant 3.1% in the first quarter, a four-year low. The last couple of times private consumption fell this sharply was in the first quarter of fiscal 2013 (-0.9%) and third quarter of fiscal 2015 (2.1%), as per the new GDP series (see Box 1).


With over 55% weight in GDP and 7.6% annual growth, on average, in the past five years, the importance of bolstering private consumption cannot be over-emphasised. In the past few years, households had dipped into their savings and leveraged themselves to support private consumption. However, first quarter data shows, they have not been able to sustain the momentum.