May 29, 2020 / 1:22 PM / 2 months ago

India's economy slows in March quarter, with worse to come

BENGALURU (Reuters) - India’s economy grew at its slowest pace in at least eight years in the January-March quarter as the COVID-19 pandemic weakened already sluggish consumer demand and investments.

FILE PHOTO: Migrant workers hold a bedsheet to protect themselves from the sun on a national highway as they walk towards their home state of Uttar Pradesh, during an extended nationwide lockdown to slow the spread of the coronavirus disease (COVID-19), in Ghaziabad, in the outskirts of New Delhi, India, May 14, 2020. REUTERS/Anushree Fadnavis

Asia’s third-largest economy grew at a faster-than-expected 3.1% in the last quarter, compared with 5.7% a year ago, government data showed on Friday.

A Reuters poll of economists had forecast a growth rate of 2.1% for the March quarter, compared with a downwardly revised 4.1% rise in the October-December period in 2019.



“Real GDP growth of 3.1% was in line with our expectation of 3.4%, especially considering the volatility in the last two weeks of March. The weakness in manufacturing, construction, trade, hotel, transport, and real estate was clearly visible in the Q4FY20 data.

The economy had clearly slowed down even before COVID-19 hit India. The contraction in investment was visible in the pre- COVID-19 period too.

This, in some sense, serves as the warning for the deep slump due in Q1 of FY21. The investment contraction along with an extremely weak private consumption segment will pull Q1 of FY21 into a deep contraction. FY21 real GDP growth will likely be around (-)5.8% though much of the estimation remains in some flux.”


“All important activity indicators of the economy — production of coal, crude oil or cement or sales of commercial vehicles or cargo handled at airports or rail freight, etc. — have witnessed a sharp decline in FY20.

The sharp deterioration of economic performance in FY20 can’t be attributed to 10 days of lockdown in March. However, stricter form of lockdown and an uncertainty about its duration will certainly push the country into a deep recession that was not witnessed in several decades.

It will be a formidable challenge for policymakers to tackle both the health and economic challenges simultaneously in FY21.”


“The Q4 FY20 GDP growth at 3.1% y/y came in somewhat better than the Street’s expectation, while the broadly-in-line FY20 GDP growth of 4.2% reflects significant downward revisions in previous quarters of the financial year.

Given the prolonged lockdown in the economy and a sudden stoppage in economic activities, Q1 FY21 is set to sink deep into the negative zone. The full-year growth for FY21 is likely to remain materially negative as well, hitting a multi-decade low.

The role of the RBI’s TLTROs and the recently-announced measures by the government will likely hold the key in this context. It is critically important to provide focused support to the lower end of the socio-economic pyramid.

While the level of stress during the lockdown period is often high for the lower strata of the economy, with meaningful and targeted policy support, these segments can potentially recover quickly once economic activities normalise and lead the recovery. We expect continued support in areas such as microfinance, MSMEs, and affordable housing.”


“India’s Q4 FY20 GDP growth slowed down to 3.1% yoy, much higher than ours (2.0%) and market expectations (1.6%). This, however, is barely a consolation.

We expect the data for the quarter to be revised down as we get better sense of the actual economic activity going forward by which time more comprehensive data flows in.

Given that the initial sample size for data collection for March for various high-frequency indicators is much lower than the actual sample size, we feel that the pain in the economy, especially that which was undergone by the MSMEs are not truly reflected in the current data.

There is a probability that the impact of the week-long lockdown in March is not necessarily fully priced in, in the GDP data.”


“The Q4FY20 GDP growth at 3.1% is a positive surprise and has been held up primarily by the robust agriculture sector growth led by an impressive Rabi output and a relatively lower de-growth in the manufacturing sector. With nearly five weeks of Q1FY21 in stringent lockdown, we anticipate a production loss of at least 30%-35%, with significant loss coming from services and construction sector.

The data on core sector growth for April at -38.1% is better than expectations and suggests that barring cement and steel sectors, most others have recorded much lower de-growth, which is heartening.

We continue to expect FY21 GDP de-growth at 4%-5% and shall wait for greater signals of the economy returning to normalcy amid relaxation of the lockdown.”


“The sharp downward revision in the previous three quarters’ numbers brought full-year growth in FY20 a tad below our expectation. Government expenditure has continued to provide much-needed support to growth, while agriculture growth has come in at an eight-quarter high.

Growth in other key sectors, however, is disappointing. Manufacturing and construction, which are key employment generating sectors, have recorded growth at multi-quarter lows. Core GVA growth (excluding agriculture and public administration) has fallen sharply to 1.2%. We believe growth will bottom out in Q1FY21.”


“The headline GDP data in Q4FY20 looks a tad better than expected. We should also bear in mind the fact that data collection was impaired due to the lockdown in late-March and, as such, there is a possibility that the GDP numbers will be revised lower.

Unsurprisingly, private consumption and investment demand weakened during the quarter. The anticipated slowdown in income growth is expected to cause substantial loss in private consumption going ahead. Although expected, a third straight quarter of contraction in investment demand is worrying and does not bode well for the economy.

On the production side, the only silver lining was the stellar growth in agriculture and public services. Excluding both these, core GVA grew by just 1.1% in Q4FY20. Looking ahead, June quarter GDP growth is expected to be worse as indicated by weak mobility trends on account of policies put in place to fight the pandemic. High-frequency indicators also do not portend well.”


“Q4 GDP print came in higher than most economists’ estimates at 3.1%. On the output front, agriculture and mining sectors seem to have held fort. On the expenditure front, government spending seems to have saved the day.

Private consumption, gross fixed capital formation and net exports have been disappointing. There have been material downward revisions in previous quarters’ GDP prints, resulting in GDP growth for FY20 coming in at 4.2%.

April core sector data came in at -38.1%, the worst print ever. Most of the negativity has already been priced in and markets are braced for a shocker of a GDP print in Q1 FY21 as well.

Going forward, markets are more likely to focus on leading and high-frequency indicators to get a sense of the pace of recovery once restrictions on movement are eased. They would be closely tracked alongside the novel coronavirus cases’ curve.”


“While the Q4 number is higher than our expectations, we expect it to be revised down in subsequent releases as the impact of the lockdown is adequately factored in. The CSO (Central Statistics Office) mentions that the data collection activity was affected due to the lockdown in March.

Going ahead, we expect GDP growth to contract by 4.8% in FY21, with a sharp drop of 21% in Q1. Supply disruptions and labour shortage issues are likely to linger on. 40% of India’s GDP comes from currently-identified red zones across states.

Overall, the economy is likely to operate below trend capacity for FY21. Therefore, the recovery process is likely to be a slow grind and we expect the catch up process to pre-COVID-19 levels to take longer than earlier expected.”


“Core sector data was to reveal a negative growth rate in the region of over 30% in April which has now come in at -38.1%. While an across the board negative number was also expected, the fall of 22.8% in electricity is a reflection of the sharp decline in industrial production as the household consumption was higher than normal.

Yet due to the lockdown, industrial and commercial demand had fallen, which gets reflected here.

The fact that labour was in transit camps meant activity in mining got affected. Lower imports of crude oil due to demand coming down meant that refinery products was affected. Cement and steel had both fallen by over 80% each due to the shutdown across the country.

The lowest decline in production was fertilizers as production was on to a limited extent given the demand for the sowing of the next crop.

This picture would be replicated in May too though not to this extent. IIP growth, too, would be in a similar range most probably given the high weight of these industries in the index.”

Reporting by Anuron Kumar Mitra, Philip George, Chandini Monnappa, Sachin Ravikumar and Chris Thomas in Bengaluru; Edited by Uttaresh.V and Rashmi Aich

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