India’s economy grew slower than expected to a 20-quarter low in the January-March period, dragging overall growth to a five-year low in FY 18-19. The provisional estimates released on 31st May showed that GDP grew at 5.8% in the 4th quarter of FY 18-19 as compared to 8.1% for the same quarter in FY 17-18. Moreover there was a decline from Q3, FY 18-19.
Overall growth of FY 18-19 slummed to a five year low and was pegged at 6.8% as against 7.2% in the previous year. There has been a steady rise in the GDP growth rate from FY 12-13 till FY 16-17 when it was as high as 8.2%. The gross value added(GVA) grew at 6.6% compared to 6.9% in the previous year. The per capita growth of GDP was pegged at 5.7%.
The quarterly growth rate for GVA was as high as 7.9% as of quarter 4, FY 17-18. This went down to 5.7% as of the same quarter in FY 18-19. What we see is a inverted V curve of the GVA growth rate quarter on quarter. Indian economy showed a steady growth quarter on quarter in FY 17-18 as per the GVA growth rate. But the trend has been completely reverse in FY 18-19.
How the growth story spans out if one focuses on the sector wise growth rate across the major 8 sectors? 5 of the 8 sectors show a decline in the year on year growth rate in FY 18-19 as compared to the previous financial year.
Mining & quarrying registered the slowest growth of 1.3% while the Construction sector registered the highest growth of 8.7% among all the 8 sectors in FY 18-19. The growth rate for agricultural sector showed a decline from 5% in FY 17-18 to 2.9% in FY 18-19. The comparison of quarter on quarter growth shows a worrying pattern. The construction sector which had shown an increase in the year on year growth in FY 18-19 as compared to the previous year has shown a severe decline in growth rate of GVA in Q4 of FY 18-19 as compared to the previous quarter (Q3, FY 18-19).
The agricultural sector showed a steady decline in growth rate across quarters in FY 18-19. The same has been true for Manufacturing sector as well. These are the sectors which are the major source of employment for unskilled and semi skilled workforce. There has been a significant argument given in favour of rise of jobs of Ola and Uber cab drivers and the increase in the number of delivery boys of Swiggy or Zomato. But if one look at the growth rate of Trade, Hotels, Transport & Communications and services related to broadcasting sector, there has been a steady decline in the growth rate across the quarters in FY 18-19.
This becomes a huge worry, more so because the Annual PLFS report, 2017-18, which was released recently showed a massive increase in unemployment rate. The unemployment rate was as high as 6.1%. There is a negative correlation between the unemployment rate and the GDP growth rate. If one compares the average GDP growth rate for the last 5 years with the unemployment rate as per the Annual PLFS report across states, it is found that the correlation is as high as -46.4% with the unemployment rate of urban males and as high as -38% with the unemployment rate of urban females. The negative correlation holds true with the rural unemployment rates for both male and female. It stands at – 10.7% and -12.9% respectively for male and female. This will remain as one of the major challenge faced by the newly formed government. The government has already formed task forces focusing into GDP growth and unemployment.
The quarterly growth rate of agricultural sector was as low as -0.1% in Q4, FY 18-19 as against 6.5% for the same quarter in the previous year. This has been a major concern area. Agriculture is very much dependent on monsoon. Monsoon this year has shown the slowest movement in 12 years. This has happened mainly due to the onset of cyclone Vayu. Moreover a vast section of India has registered lower than normal rains in the month of June. So agriculture sector which has shown a negative growth as of quarter 4 of FY 18-19 remains a major reason to worry. This will remain a major challenge for Nirmala Sitharaman as she presents her first budget in few days. There has to be meausres taken with long term planning in mind. A huge investment on irrigation is the need of the hour.
So in a nutshell, Indian economy shows the early signs of slowdown and with the rising unemployment and slow movement of monsoon, the future seems to be challenging. The new finance minister has a huge set of concerns in front of her as she presents her first budget. It will be worth seeing, how she address all the issues and what policies are adopted as remedy measure.