Growth in gross fixed capital formation, a proxy for investment, fell to a 19-quarter low in the July-Septemberperiod of the fiscal year 2019-20 (Q2FY20), despite the government announcing stimulus measures in the quarter.
The gross fixed capital formation (GFCF) grew by 1 per cent in Q2FY20, compared to a 4.04 per cent growth in the previous quarter, showed data released by the Central Statistics Office on Friday.
The share of GFCF in overall gross domestic product (GDP) shrank to 27.8 per cent during the quarter, against 29.7 per cent in the previous quarter — the lowest since Q4FY17.
It was the government spending that held up growth in the quarter, while private spending also sprung a surprise of sorts. The government final consumption expenditure grew by 15.3 per cent during Q2, a six-quarter high.
“A large part of growth impulse has come from government push, both on the output and expenditure side… Growth in the second half of the year could remain evasive unless government pumps in more stimulus and continues to heavy lift growth push through the fiscal year,” said Rajni Thakur, economist, RBL Bank.
Contrary to the glaring evidence of worsening consumption demand across sectors in the economy, growth in private final consumption expenditure (PFCE), a proxy of demand, improved in the period, compared to the previous quarter.
chart
PFCE grew by 5.1 per cent in Q2FY20, despite demand deceleration across categories including automobile, electricity, sugar, real estate, biscuits and others.
“The sequential uptick in growth of private consumption expenditure in Q2FY20 is somewhat at odds with the evidence from various sectors regarding subdued consumption sentiment in rural as well as urban areas,” said Aditi Nayar, principal economist, ICRA.
Ranen Banerjee, leader of public finance and economics at PwC India, said: “The effects of rural demand uptick on Q3 numbers will be crucial to avert a sub-5 per cent annual growth rate.”
graph
Finance minister Nirmala Sitharaman had announced a slew of measures to boost investment and demand in the economy including a cut in the corporation tax rates and a Rs 20,000-crore fund to provide last-mile funding for affordable and middle income housing, etc.
“To address the current issue, the government is expected to take further measures,” said Arun Singh, chief economist at Dun and Bradstreet India.
“To set the ball rolling, both the Centre and the state governments should gear up to execute the infrastructure projects in the pipeline. This would provide employment opportunities.
Further, they should work towards ensuring that auditing norms become more stringent. Reinforcing confidence of stakeholders in the ecosystem will be one of the biggest challenges for the government to tackle,” he added.
The gross fixed capital formation (GFCF) grew by 1 per cent in Q2FY20, compared to a 4.04 per cent growth in the previous quarter, showed data released by the Central Statistics Office on Friday.
The share of GFCF in overall gross domestic product (GDP) shrank to 27.8 per cent during the quarter, against 29.7 per cent in the previous quarter — the lowest since Q4FY17.
It was the government spending that held up growth in the quarter, while private spending also sprung a surprise of sorts. The government final consumption expenditure grew by 15.3 per cent during Q2, a six-quarter high.
“A large part of growth impulse has come from government push, both on the output and expenditure side… Growth in the second half of the year could remain evasive unless government pumps in more stimulus and continues to heavy lift growth push through the fiscal year,” said Rajni Thakur, economist, RBL Bank.
Contrary to the glaring evidence of worsening consumption demand across sectors in the economy, growth in private final consumption expenditure (PFCE), a proxy of demand, improved in the period, compared to the previous quarter.
chart
PFCE grew by 5.1 per cent in Q2FY20, despite demand deceleration across categories including automobile, electricity, sugar, real estate, biscuits and others.
“The sequential uptick in growth of private consumption expenditure in Q2FY20 is somewhat at odds with the evidence from various sectors regarding subdued consumption sentiment in rural as well as urban areas,” said Aditi Nayar, principal economist, ICRA.
Ranen Banerjee, leader of public finance and economics at PwC India, said: “The effects of rural demand uptick on Q3 numbers will be crucial to avert a sub-5 per cent annual growth rate.”
graph
Finance minister Nirmala Sitharaman had announced a slew of measures to boost investment and demand in the economy including a cut in the corporation tax rates and a Rs 20,000-crore fund to provide last-mile funding for affordable and middle income housing, etc.
“To address the current issue, the government is expected to take further measures,” said Arun Singh, chief economist at Dun and Bradstreet India.
“To set the ball rolling, both the Centre and the state governments should gear up to execute the infrastructure projects in the pipeline. This would provide employment opportunities.
Further, they should work towards ensuring that auditing norms become more stringent. Reinforcing confidence of stakeholders in the ecosystem will be one of the biggest challenges for the government to tackle,” he added.
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