India’s April-June quarter GDP contracted by a massive 23.9 per cent year-on-year (YoY), the first GDP contraction in more than 40 years. As per the National Statistical Office (NSO), gross value added (GVA) came in at -22.8 per cent.
Q1 mining contracted 23.3 per cent versus 4.7 per cent YoY, while Q1 manufacturing growth slid 39.3 per cent versus 3 per cent YoY. Agriculture growth came in at 3.4 per cent versus 3 per cent YoY and construction growth fell 50.2 per cent versus 5.2 per cent YoY.
Gross fixed capital formation was down 47 per cent YoY, while government final consumption expenditure was up 16 YoY.
The fine print
- Trade, hotels, transport and communication saw 47% dip
- Manufacturing shrank 39.3%, while construction took a 50.3% hit
- Mining output struggled at 23.3%, and electricity and gas dipped by 7%
- The lone bright spot was agriculture, growing at 3.4%
“The Reserve Bank of India (RBI) won’t lose too much sleep on this number as it was expected. The RBI still has its focus on growth. This (GDP number) slightly improves chances of a rate cut in October. Unless the inflation comes below 5% in the next reading, the RBI still might postpone the rate cut to December,” Rupa Rege Nitsure, group chief economist, L&T Financial Holdings told Reuters in a commentary on the numbers.
India’s economy had expanded by 3.1 per cent in the March quarter and dragged FY20 GDP growth to 4.2 per cent, the weakest since the global financial crisis. The economy had grown at 6.1 per cent in FY19.
GDP estimates for India in 2020 had already painted a very bleak picture. The World Bank had projected 3.2 per cent contraction, while the International Monetary Fund pegged it at 4.5 per cent and the Asian Development Bank at 4 per cent. Nomura had estimated growth at (-)5.2 per cent, and Icra had recently revised its forecast for contraction in the current fiscal to 9.5 per cent.
The core sector contracted 9.6 per cent in the month of July, an improvement over 12.9 per cent contraction seen a month ago, as per a release on Monday. This is the fifth month of contraction on run for the eight core industries.