Nominal GDP growth rises just 8%, least in the current series of accounts going back to FY12, indicating a deep slowdown

India’s economy grew at its slowest pace in over six years in the June quarter following a sharp deceleration in consumer demand and tepid investment. The government has already announced a series of measures in the past week as part of its efforts to put growth back on track.

Gross domestic product (GDP) grew 5% in the first quarter of FY20, data released by the government showed, marking the slowest growth since the fourth quarter of FY13. GDP growth was 8% in the year-earlier quarter and 5.8% in the preceding one. China’s economy grew 6.2% in the June quarter.

Nominal GDP growth, a measure of GDP without adjusting for inflation, rose just 8%, the least in the current series of national accounts going back to FY12, indicating a deep slowdown. Comparing across different series, it could be the lowest since FY03, economists said.

Consumption, the bedrock of growth in the past few years, collapsed to an 18-quarter low of 3.1% from 10.6% in the March quarter, pointing to fragile sentiment. Investments grew 4%, up from 3.6% in the previous quarter.

The slowdown in investment and consumer demand derailed manufacturing, which grew just 0.6%. A meagre 2% rise in farm sector added to the demand slowdown.

“Government is taking steps. We should be back to the high growth path soon,” chief economic adviser Krishnamurthy Subramanian said, adding green shoots were visible, pointing to high growth in electricity.

In the past week, the government has announced a package of measures such as liberalising FDI for select sectors, ensuring flow of credit to non-banks, rollback of a controversial tax surcharge on foreign portfolio investors, more capital for banks and a big-bang bank consolidation.

Independent experts, however, expect the slowdown to persist for a while and see another rate cut by the central bank in October after the 110 percentage points slashed in this round of monetary easing.

“There is no quick fix solution to the downturn which has been in the making for the past few years,” said India Ratings chief economist DK Pant, adding that both cyclical and structural factors were at play, pointing to the decline in savings.