India is now growing at the slowest pace since 2009. The difference this time is that the slowdown is largely due to domestic factors, whereas the 2009 slowdown was precipitated by developments abroad.
Here are 10 facts on the GDP data announced today.
1) India's economy grew 5.5 per cent in the April to June quarter, just above the 5.3 per cent posted in the three-month period ending in March and slightly better than estimates of 5.2 per cent.
2) Weak demand in the West has hit exports, but the heaviest toll on the economy is from overspending and a lack of reforms at home. Construction, finance, insurance, community, and personal services sectors were the areas of strength while trade and hotels segment saw weak growth.
3) The industrial sector grew an annual 3.6 per cent against 5.6 per cent in the same quarter last fiscal. The manufacturing sector, which accounts for 76 per cent of total industrial output, grew by a shocking 0.2 per cent.
Glenn Levine, senior economist at Moody's Analytics said, “I think the manufacturing sector is very weak at the moment. This is the big Achilles’ heel for the Indian economy right now. ”
4) Farm output rose 2.9 in the April-June quarter against 3.7 per cent in the previous year.
5) The services sector was the biggest disappointment growing a feeble 6.9 per cent against 10.2 per cent in the year-ago period.
Sonal Varma, India economist at Nomura India said: “Headline (growth) is better than anticipated but the services sector growth is worrying. Industrial slowdown is now translating to the services segment. Exports also remain weak on investment. I don’t see 5.5 per cent as a big positive number.”
6) Equity markets saw some recovery before slipping back deep in the red, while India's benchmark 10-year bond yield rose 3 basis points to 8.23 per cent after the GDP data. That's because investors were optimistic that a weak growth number would persuade the RBI to lower interest rates at its September 17 policy meeting
"The RBI still maintains a hawkish bias and rate cuts are still seem some way off. Asian data momentum has not been great in Q3 so it is difficult to see a dramatic improvement in Q3," said Jonathan Cavenagh, a currency strategist at Westpac, Singapore.
7) Shares in public sector banks turned positive after as the farm sector grew more strongly than expected, easing worries of rural non-performing assets. State banks are seen particularly exposed to the farming sector.
8) The rupee also rose against the dollar after better than expected growth. Dealers say the data is 'slightly positive' for the rupee, but large gains are unlikely as euro hovers near this week's low against the dollar, and on month-end dollar demand from oil refiners.
9) C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, expects a pickup in growth in the second half of the year. “I think the Q1 GDP growth of 5.5 per cent is consistent with a growth rate of 6.7 per cent for the year as a whole that we had projected.”
10) The absence of a stronger rebound in growth is further bad news for the government, which is embroiled in a row with the main opposition Bharatiya Janata Party (BJP) over sweetheart coal deals. The state auditor has questioned the deals, and the BJP has refused to allow parliament to function until the Prime Minister quits.
(With inputs from Thomson Reuters)