India's economic growth slows to 3.1 pc, worst yet to come

India's economic growth tumbled to 3.1 per cent in the March quarter -- the slowest pace since the global financial crisis more than a decade back -- but the worst is yet to come as the full impact of the world's most expansive lockdown that brought the nation to a near standstill will get fully accounted for only in the next quarter. The government began locking down Asia's third-biggest economy only towards the end of the March quarter to contain the spread of the coronavirus pandemic. The arduous lockdown, imposed on March 25, has already been extended thrice, with some relaxations beginning early this month.

Manufacturing contracted 1.4 per cent in the last quarter of 2019-20 fiscal (April 2019 to March 2020) while construction plunged 2.2 per cent. Agriculture grew by an impressive 5.9 per cent, the Ministry of Statistics and Programme Implementation said, adding the GDP estimates were "based on available data" and are likely to undergo revision. The Indian economy grew by 4.2 per cent in 2019-20 fiscal, the slowest in 11 years, after downward revision of growth rates for each of the previous three quarters.

The growth rate in FY20 is slower than the 5 per cent the government expected before the virus outbreak. International credit rating agencies S&P Global and Fitch Ratings, as well as some economists, expect the fiscal year that began in April to see the worst economic contraction in four decades, with GDP shrinking by a record 5 per cent.

India was already in the midst of a protracted economic slowdown before the virus hit due to a festering crisis among shadow lenders and on declining consumer demand and private investment. The Indian economy had grown by 6.1 per cent in FY19.

The services sector accounts, which accounts for 55 per cent of gross domestic product (GDP), and manufacturing has been severely crippled by the lockdown, causing ripple effects on jobs and economic growth. Infrastructure output, which comprises eight sectors including coal, crude oil, and electricity, contracted 38.1 per cent in April from a year earlier. The core sectors account for nearly 40 per cent of the country's industrial output.

Slower economic growth also meant slippage in fiscal deficit target. Fiscal deficit -- the shortfall in a government's income compared with its spending -- came in at 4.59 per cent of GDP for FY20, as compared to the budgetary target of 3.8 per cent. Commenting on the GDP numbers, Rumki Majumdar, Economist, Deloitte India, said growth in the last quarter of FY20 has been the slowest since the global financial crisis more than a decade ago.

"If one may recollect, economic activities were showing signs of traction in early 2020. India's industrial production for the first two months suggested that green shoots were appearing in industrial activities. "In other words, a large part of the slowdown that we see in the January-March quarter may have happened primarily in the second half of March, which is when COVID-19 started spreading aggressively in India forcing the government to take immediate actions to contain the spread," she said. She said this implies that India's growth may have been on a stronger track had there been no COVID-19 and that fundamentals were improving.

"While one can gauge the extent of the impact two weeks of disruption has caused and that more pain awaits in the first quarter of the new fiscal year, which is when the disruption is likely to be the maximum, India may see a quicker recovery when this pandemic subsides," she said, adding several fundamentals remain strong and low oil prices will help. S&P had on Thursday stated that economic activity will face ongoing disruption over the next year as the country transitions to a post-COVID-19 world.

To deal with the economic fallout of COVID-19, the government has announced a Rs 20.9 lakh crore package, mostly made up of subsidized credit to small businesses and farmers with direct fiscal stimulus limited to around 1 per cent of the GDP. The Reserve Bank of India (RBI) has reduced the key interest rate by 115 basis points since March.

The services sector was among the hardest hit by the lockdown restrictions imposed since March 25. Trade, hotels, and transport grew 2.6 per cent in the January-March quarter from a year ago, while financial services expanded 2.4 per cent. Gross value added -- a key input of GDP that strips out taxes -- grew 3 per cent in January-March quarter from a year ago.

The RBI had also pegged the GDP growth for 2019-20 at 5 per cent. China's economy had contracted by 6.8 per cent in January-March 2020, showing the impact of COVID-19.