Economy appears to have slowed down in FY19, says Finance Ministry report

On a positive note, the current account deficit as ratio to gross domestic product is set to fall in January-March quarter of 2018-19

Economic growth appears to have slowed slightly in fiscal year 2018-19 (FY19), a finance ministry report has said.

A declining growth of private consumption, weak increase in fixed investment and muted exports are some reasons for the slowdown, said the report, titled ‘Monthly Economic Report' for March 2019. It was released by the Department of Economic Affairs on Wednesday.

“The Indian economy is the fastest-growing major economy and is projected to grow faster in the coming years. However, India's economy appears to have slowed down slightly in 2018-19,” the report stated.

“On the supply side, the challenge is to reverse the slowdown in growth of the agriculture sector and sustain the growth in industry,” it said, clearly admitting the extent of the farm sector slowdown. This comes at a time when the Opposition is constantly attacking Prime Minister Narendra Modi on rural distress while campaigning for the ongoing Lok Sabha elections.

The report also stated that retail inflation was showing signs of peaking. “The room for monetary easing has been created by low inflation in 2018-19, although it has started to inch up in last few months of the year,” it said. The report added that the real effective exchange rate has appreciated in Q4 of FY19 and could pose challenges to the revival of exports in the near future.

On a positive note, current account deficit as ratio to gross domestic product is likely to have fallen in the January-March quarter of FY19, which would limit the leakage of growth impulse from the economy, while fiscal deficit has been gliding down to the targeted 3 per cent, the report stated.

Also, an increase in foreign exchange reserves in Q4 of FY19 on account of an improvement in trade balance has increased the import cover for the economy.

The country's GDP grew at a six-quarter low of 6.6 per cent in Q3FY19 because of subdued expansion in agriculture, manufacturing and government expenditure, according to official data.  However, investment activity continued to grow at a healthy pace.

The government has also lowered its estimate of economic growth for Q1 and Q2 of FY19 to 8 per cent and 7 per cent, respectively, from its earlier estimate of 8.2 per cent and 7.1 per cent, respectively.

As a result, the forecast for the full year's growth has been revised downwards to the lowest in the Modi government - at 7 per cent in FY19 because of lacklustre growth in farm, mining and some services such trade, hotels and transport. Because of high growth in Q1, manufacturing is projected to show higher growth this year compared to the previous year.

These numbers suggest that the central statistics office expects the economy to grow marginally lower at 6.5 per cent in Q4FY19.