GDP records tepid growth at 7.1% in April-June quarter; worry for Modi government

New Delhi: India’s gross domestic product, GDP, slowed to 7.1 percent in the April-June quarter compared with 7.5 percent in the corresponding period a year-ago hit by lower activity in farm, mining and construction sectors, official data showed on Wednesday. The numbers came less than  the 7.5 per cent predicted by the economists in a CNBC-Tv18 poll and casting doubts among economists over the pace of economic recovery. [caption id=“attachment_2618232” align=“alignleft” width=“380”]  Reuters[/caption] The key highlight of the GDP data was a visible slowdown in the fresh investment activity as reflected in the muted gross fixed capital formation (GFCF) numbers that decline by 1.1 percent at current prices in the quarter as compared with an increase of 6.8 percent in the year-ago period. Slowing investments have been a key concern for economists.  In terms of gross value added (GVA) – considered a better measure of economic performance, the growth was a tad higher at 7.3 per cent, against 7.2 per cent in the previous year, as per data released by the Central Statistics Office. The Narendra Modi-government has targeted the GDP growth to top 8 percent this fiscal, mainly on the back of a normal monsoon season. The growth rate of the entire previous fiscal – at 7.6 per cent – had made India the fastest expanding economy globally, overtaking China. According to a government press release, the economic activities which registered growth of over 7 percent in first quarter are include manufacturing and electricity.  The growth in the agriculture, forestry and fishing, mining and quarrying, and construction is estimated to be at 1.8 percent, (-) 0.4 percent, and 1.5 percent respectively during this period. Broadly looking at the numbers, private consumption continues to be the key driver of the economic growth rather than fresh investment generation, which will prompt economists to question the quality of the GDP growth. “The latest GDP print shows that the growth momentum has decelerated from the last quarter while still remaining over the crucial 7 percent mark. This continues to depict the fact that growth is still coming from certain parts of the economy and is yet to achieve a sustainable mix. Despite the reliability of the consumption side numbers, some trends can be clearly seen and correlate well with other data points Firstly, government expenditure has helped the overall number by growing by almost 19 percent in the first quarter while the investment momentum remains weak as it continued to show contraction,” said Deloitte India, lead economist, Anis Chakravarty. “We stick to our forecast of growth around the 7.6 percent handle, which essentially means that any acceleration from the previous year is likely to be minimal. Industry continues to remain weak on the back of global challenges and domestic demand taking some time to pick up. Growth will likely get a boost from consumption in the second half due to a pickup in rural consumption helping the industry in some parts,” Chakravarty said. With IANS input