While data revisions have lifted first-half growth, actual numbers reveal a softening

Official estimates of gross domestic product for the fiscal third quarter have pegged growth in the festival demand-filled October-December period at 4.7%, a distinct slowdown from the revised year-earlier and preceding quarters’ 5.6% and 5.1% paces respectively. Manufacturing, which contributes just under a fifth to gross value added (GVA), was the biggest drag posting a 0.2% decline and extending the sector’s contraction into a second straight quarter. Output at electricity and allied utility services also shrank 0.7%, reflecting lack of demand from becalmed factories. And activity in construction, a generator of orders for goods from cement to steel, softened worryingly to a 0.3% expansion, prolonging the industry’s slowdown for a third consecutive quarter. However, agriculture and the three largest services sectors, including public administration and defence, shored up overall GVA, with farm output expanding by 3.5% and the government-centred services growing by 9.7%, according to NSO estimates. The Centre was quick to assert that the economy appeared to have “bottomed out”, with the Economic Affairs Secretary citing an improvement in output at the eight core industries as an uptick in momentum. To be sure, overall growth at the eight industries that include coal, refinery products, steel, cement and electricity averaged 2.2% in January, propelled by an 8% increase in coal production. And the survey-based IHS Markit India Manufacturing PMI for February pointed to an improvement in manufacturing, clearly a positive augury.

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Still, a closer look at the actual numbers for private final consumption expenditure (PFCE) and gross fixed capital formation (GFCF) — key components of GDP — across the three quarters belies hope that the economy is out of the woods. While a downward revision of data for 2018-19 have lent a statistical boost of 0.6 percentage point to the first and second quarter GDP growth estimates, disconcertingly the second-quarter PFCE and GFCF figures have been revised downward from what was projected earlier. And of concern is the second successive contraction in capital formation. GFCF shrank 5.2% in the third quarter, after declining 4.1% over July-September, signalling that investment activity is just not recovering, the government’s corporate tax cuts notwithstanding. Consumption spending too remains palpably soft with the pace of growth for all three quarters lagging the year-earlier levels even after the revision. With automobile sales still floundering, the RBI’s consumer confidence survey pointing to a fall in non-essential consumption and the coronavirus outbreak’s impact on global demand yet to be factored in, the bottom may still be some distance away.