In Q3, India's GDP had expanded at 6.6%
In Q3, India's GDP had expanded at 6.6%

Modi 2.0: Macro shock on Day 1 as data shows faltering GDP growth, high joblessness

  • Focus now shifts to RBI on whether it will provide a monetary stimulus on 6 June
  • Expectations on economic reforms went up significantly after PM Narendra Modi returned to power with a mandate even bigger than in 2014

NEW DELHI : The first day of the new government held out gloomy news on the economic front, with growth falling to a nearly five-year low of 5.8% and unemployment data confirming severe joblessness.

The focus now shifts to the Reserve Bank of India on whether it will provide a monetary stimulus to the decelerating economy in its monetary policy review on 6 June, ahead of the budget to be presented on 5 July.

The newly revamped National Statistical Office (NSO) also slashed its full-year growth estimate for 2018-19 from the estimated 7% earlier to 6.8%.

The data suggested a broader slowdown gripping the economy for the last two years cutting across sectors, such as agriculture, manufacturing, electricity, transport and communications, confirming the fear of many economists that the current downturn is structural rather than cyclical. However, annual investment and consumption rates for 2018-19 improved over the last year, instilling some confidence.

Briefing reporters, economic affairs secretary Subhash Chandra Garg attributed the fourth quarter slowdown to temporary factors, and said growth will pick up. “Slowdown in the fourth quarter GDP was due to temporary factors like the stress in the NBFC (non-banking financial company) sector affecting consumption finance. The first quarter of the current fiscal would also witness relatively slow growth and from second quarter onwards, it will pick up," Garg said.

On Friday, the NSO also formally released the previously leaked annual Periodic Labour Force Survey (PLFS), confirming that the unemployment rate was at 6.1% in 2017-18. However, the NSO held that the rate is not comparable with previous similar surveys as the PLFS sample emphasizes on the level of education in a household where at least one person should have secondary education or above, while the earlier employment surveys were based on monthly per-capita expenditure.

“The rationale for this decision was based on the fact that education levels in the economy have risen due to various policy interventions such as the Right to Education Act, and it would be important to assess the level of employment and unemployment, using this as a stratification basis. This has been incorporated in the sampling design of PLFS, where, out of eight households selected in the sample, 75% had at least one member with 10th standard or above," said chief statistician Pravin Srivastava.

PLFS was launched to measure labour force participation and employment status in the short time interval of three months for urban areas, and both for rural and urban areas on an annual basis. The quarterly survey captures only Current Weekly Status (CWS), while the annual survey measures both the usual status and CWS.

India’s urban unemployment rate as measured by CWS rose by 10 basis points in the October-December quarter to 9.7%, after dipping by an equal measure in the previous quarter.

The NSO said the change in criteria from monthly per-capita expenditure to education levels has direct implications on the comparability of the results of PLFS with the Employment Unemployment Survey of earlier years. “In view of this, the PLFS needs to be seen as a new series for measuring employment and unemployment on an annual basis," Srivastava said.

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