GDP expected to slip further in April-June quarter

India's GDP slowed to a shocking 5 per cent for the first quarter ending June 30, 2019, as was hardly expected from a range of high frequency data. This is the fourth consecutive fall in GDP; from 8 per cent in Q1 FY19 to 5 per cent in this quarter.

It may be noted that the GDP has been slowing down quarter after quarter reaching 5% in April-June period of FY20 from 8% during Q1 of 2018-19. He, however, expects GDP growth to recover to 7.4 per cent in the second half the current fiscal mainly on account of the base effect.

In May, the government had announced India's GDP figures for January-March quarter of 2018-19 had slipped to 5.8 per cent against 6.6 per cent in the third quarter due to poor performance in agriculture and manufacturing sectors.

Prior to announcement of GDP numbers, the government on Friday announced its second of the three-part stimulus, merging 10 public sector banks into four with a view to boost credit to help revive the economy.

Most analysts, however, said India's problem lies in the sharp decline in consumption demand even as investment demand continued to remain weak.

Narang said though he was hopeful that reform measures announced this month by Modi's newly re-elected government would give the economy a boost in the coming quarters. So far this year, it has cut the benchmark repo rate by 110 basis points.

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The Gross Value Added (GVA) growth in the manufacturing sector tumbled to 0.6 per cent in the first quarter of this fiscal from 12.1 per cent expansion a year ago.

Policymakers are anxious about a slowdown in consumer demand and private investments.

New Delhi is taking steps to try to revive growth, and recently got help from the central bank, in the form of a windfall dividend of almost $21 billion.

The central bank has shown willingness to join hands with the government to try to revive consumer demand and investments because inflation remains below its 4% medium term target for a year.

The bank's estimate of gross domestic product (GDP) growth is now well below the expectations of other banks, and a long way from the Reserve Bank of India's (RBI) forecast of 6.9 percent forecast, which itself was cut from 7.0 percent this month.

Many indicators automobile sales, rail freight, petroleum product consumption, domestic air traffic and imports - signal drops in domestic consumption.

  • Darren Santiago