India's GDP slows to 4.5% in Q2 FY2020, M&HCV sales to continue to bear the blow

by Shahkar Abidi 29 Nov 2019

The country's economy has slowed down further during the second quarter of the financial year growing at 4.5%, a six-year low.

As per the data released by National Statistical Office (NSO), the GDP at constant (2011-12) prices in Q2 of 2019-20 is estimated at Rs 35.99 lakh crore, as against Rs 34.43 lakh crore in Q2 of 2018-19, showing a growth rate of 4.5 percent. Quarterly GVA (Basic Price) at constant (2011-2012) prices for Q2 of 2019-20 is estimated at Rs 33.16 lakh crore, as against Rs 31.79 lakh crore in Q2 of 2018-19, showing a growth rate of 4.3 percent over the corresponding quarter of previous year. Further, the combined index of eight core industries declined by 5.8 percent as compared to the index of October 2018. Its cumulative growth during April to October,2019-20 was 0.2 per cent.

The latest GDP data comes as an indicator to the prolonged slowdown in the Indian automotive industry, especially the medium and heavy commercial vehicles (M&HCV) segment, which is considered as the barometer of the economic health of the country.

The M&HCV segment has been in decline since the past 13 months, with its severity getting intensified in recent months. The production of M&HCVs during the April-October 2019 period declined by 43.8% to 149,902 units as original equipment makers (OEMs) slashed production to match the slowing demand. Likewise, passenger vehicle and 3-wheeler production declined by 16.66% (2,039,543) and 14.68% (687,275) respectively during the same reported period. On an overall basis, the automotive industry saw production falling YoY by 15.25% (16,583,587).

Commenting on the development, Deepthi Mary Mathew, economist at Geojit Financial Services  said that the GDP growth rate for Q2 FY2020 is in line with the market expectation at 4.5%. Further, all the indicators ranging from IIP, electricity consumption to core inflation rate are pointing towards the fact that the economy has not entered the revival path. "The slowdown in consumption is indeed worrying, as its revival is important for investment to pick up," said Deepthi.

"The Private Final Consumption Expenditure (PFCE) declined to 5% YoY compared to 9.7%.  With the growth slipping to 4.5%, it is expected that RBI will go for the next round of rate cut in December."  Deepthi added.

In a report released on Friday by CARE Ratings, during the first 7 months of the fiscal year 2019-20, the Central government has surpassed the budgeted fiscal deficit and reached 102.4% of the Budget target of the fiscal year. The fiscal deficit of the government stands at Rs 7.20 lakh crore, higher than the budgeted Rs 7.04 lakh crore for FY2020. This, however, continues to be lower than 103.9% of the budgeted fiscal deficit in the corresponding period last year. The excessive fiscal deficit than the budgeted deficit can be ascribed to persistent shortfall in the tax revenue collection (Rs 6.83 lakh crore) than the Budget and higher capital expenditure (Rs. 2.01 lakh crore).

However, the recent steps taken by the government to pep up the economy has started showing some silver linings. Improved sales during the festive season has brought some relief to the industry albeit much more still needs to be done to bring back the India Auto Inc onto growth lane. Passing of the much-awaited scrappage policy would be a good start.