India sees slowest growth since 2013 on weak consumption

Gross domestic product (GDP) will grow 5% in the year through March 2020, the Statistics Ministry said in a statement in New Delhi on Tuesday. That is in line with the median estimate in a Bloomberg survey of 22 economists and compares with 6.8% expansion in the previous year.

That pace will place India, which was the world’s fastest-growing major economy last year, behind regional peers like China, Vietnam and the Philippines, all of which are seen expanding close to 6% or more.

To boost growth, the central bank cut interest rates five times last year and Prime Minister Narendra Modi’s government lowered taxes for companies.

But there’s been little sign of a revival in investment or a pick-up in consumer demand. The Reserve Bank of India (RBI) last month reduced its own full-year growth estimate to 5%, which will be the slowest pace since the year ended March 2013, after the methodology for calculating national output was changed.

There are no surprises, said Madhavi Arora, an economist at Edelweiss Securities in Mumbai. She sees improvement in the remaining two quarters, with the global manufacturing picture showing improvement and base effect seen helping growth numbers.

The International Monetary Fund (IMF) is separately set to lower India’s growth forecast this month, after previously forecasting 6.1% expansion. Poor business sentiment and declining rural consumption are among reasons for weakness in the economy, the IMF’s Chief Economist Gita Gopinath said last month.

The slump in consumption, which makes up about 60% of GDP, can be attributed in part to a crisis among shadow lenders and a build-up of bad loans at banks, which in turn curbed lending in the economy. Waning consumer confidence amid unemployment at a more than four-decade high also hurt activity.

With the room for more central bank stimulus closing as inflation quickens, the focus shifts to Finance Minister Nirmala Sitharaman’s annual budget, scheduled for 1 February.