India’s economy slows in March quarter with worse to come

Mumbai's financial district skyline is pictured during a nationwide lockdown to slow the spreading of the coronavirus disease (COVID-19) - REUTERS

NEW DELHI (Reuters): India’s economy grew at its slowest pace in at least eight years in the January-March quarter as the coronavirus pandemic weakened already sluggish consumer demand and investments.

Asia’s third largest economy grew at a faster-than-expected 3.1% in the last quarter, compared with 5.7% a year ago, government data showed.

A Reuters poll of economists had forecast a growth rate of 2.1% for the March quarter, compared with a downwardly revised 4.1% rise in the October-December period in 2019.

HDFC Bank Senior Economist Sakshi Gupta said GDP growth for the March quarter was likely to be downwardly revised as data collection was affected by India’s coronavirus lockdown.

“The recovery process is likely to be a slow grind and we expect the catch-up process to pre-COVID-19 levels to take longer than earlier expected,” Gupta said.

India’s manufacturing sector output contracted 1.4% in the March quarter from a year earlier, against a 0.8% fall in the previous quarter. Farm output grew 5.9% compared to 3.6% in the previous quarter, the data showed.

On Friday, the Ministry of Statistics and Program Implementation cut its growth estimate for the fiscal year that ended on March 31 to 4.2% – the lowest in at least eight years under the current series – from a previously projected 5%.

The government has maintained the lockdown ordered in late March though many restrictions were eased for manufacturing, transport and other services from 18 May. 

The lockdown’s full impact on manufacturing and services will become more apparent in the June quarter. Goldman Sachs has predicted a 45% contraction from a year ago.

Economists expect the fiscal year that began in April will see the worst economic contraction in four decades, and say the economy could contract up to 5%.

India has reported 165,000 coronavirus cases, with 4,706 deaths.