India's Q1 GDP grows 7%, slowdown triggers concern

07 Sep '15

3 min read

India's economy grew 7 per cent in the first quarter of the current financial year, well below expectations and slower than the preceding three-month period, denting the Modi government's optimism about a strong recovery and adding to pressure on the central bank to cut rates.

The core sector index which measures the output of eight infrastructure industries rose just 1.1 per cent in July, pointing to the challenge facing the government in boosting investment and growth.

A relatively deficient monsoon with 11 per cent shortfall has raised concerns about rural demand with the festive season round the corner.

GDP at current prices, which includes the effects of inflation, was up only 8.8 per cent compared with 13.4 per cent in same quarter last year, suggesting that there are hardly any inflation pressures.

The slowdown is consistent with private forecasts that see India slowing from 7.3 per cent growth in FY15 because of the deceleration in the Chinese economy that's likely to pull down overall global growth.

Ratings agency Moody's has already lowered its growth estimate for the year to 7 per cent from 7.5 per cent estimated earlier, citing concerns on reforms and other factors.

Commenting on the latest GDP data, Federation of Indian Export Organisations (FIEO) Pesident S C Ralhan said that decline in merchandise exports by 16.75 per cent (contributing to about 15 per cent of GDP) and service exports by 7.08 per cent (with a share of about 7.5 per cent in GDP) had pulled down the GDP growth by over 3 per cent.

Ralhan said that achieving 8 per cent GDP growth in 2015-16 would be possible only if exports show an overall growth of at least 10 per cent during this fiscal, which at the moment looks challenging as first four months have produced negative results.

Apex industry body ASSOCHAM has also expressed concern over the latest GDP figure.

“Agriculture, mining, manufacturing, electricity, gas, water supply and other utility services remain to be key areas of concern as the gross value added for all these sectors has slowed down in Q1 of 2015-16 vis-à-Vis Q1 of 2014-15, though some progress is seen in trade, hotels and communications and construction sectors,” said Mr Rana Kapoor, president of The Associated Chambers of Commerce and Industry of India (ASSOCHAM)

He also called for a rate cut by the Reserve Bank of India. “Easing of monetary conditions would lead to a lower lending rate framework that would aid both consumption and investment demand, therefore the RBI in its upcoming bi-monthly monetary policy must give due consideration to reviving the industrial growth in the country,” he said.

ASSOCHAM also expressed concern over anticipated slow down in pace of reforms. “The Government needs to keep on pushing at more ground level reforms and improve implementation so as to realize the economy's true potential,” Kapoor said. (SH)