NEW DELHI -- The Indian economy grew at its slowest pace in over six years in the April-June quarter owing to weak consumption demand and investment, official data showed on Friday.
The news has put added pressure on the government of Prime Minister Narendra Modi to expedite stimulus measures to reverse the slowdown.
For the first quarter of the fiscal year that began in April, government estimates showed that gross domestic product expanded 5.0% on the year, down from the 5.8% recorded in the January-March period.
The median forecast polled by Reuters was for a 5.7% expansion. It also means that India lost its status as the fastest-growing major economy for the second consecutive quarter as neighboring China grew 6.2% in the April-June quarter. One of the main reasons for slower-than-expected growth was that private consumption grew just 3.1%, the slowest level since October-December 2014.
The slowdown comes amid distress in sectors ranging from non-banking finance to automobile and real estate. Escalating U.S.-China trade tensions are also being blamed for the slump.
Corporate earnings also fell sharply in the same quarter, marking their first double-digit drop in combined net profit in two years.
The latest GDP data follows Finance Minister Nirmala Sitharaman's Aug. 23 announcement to revive economic growth by dropping a recent tax increase on foreign equity investors and removing an additional levy that startups had to pay, among other measures. The announcement included incentives to boost the ecosystem for small and midsize enterprises.
"The measures announced by [the Finance Minister] will facilitate ease of doing business, improve demand, make credit affordable and boost the overall economy," Modi tweeted after Sitharaman's announcement.
In a further bid to jump-start the economy, Modi's cabinet on Wednesday approved liberalization of foreign direct investment rules in areas such as contract manufacturing, coal mining and single-brand retail.
Analysts said the Indian economy had been in a slowdown for over a year but the government was only realizing that after the data was released.
"Not really anticipating risks has cost us [dearly]," N. R. Bhanumurthy, professor of economics at the New Delhi-based National Institute of Public Finance and Policy, told the Nikkei Asian Review.
"We could only hope that economy has bottomed out [in the first quarter], but how robust the recovery will be depends on how we are going to navigate the economy," he said, adding that government measures taken last week should help contain the slowdown. Bhanumurthy also called for "more instruments" to improve savings.
Among the factors that dragged down growth was manufacturing, which expanded only 0.6% in April-June compared with 12.1% in the same period last year.
"When the demand is dwindling down across sectors, you should be surprised why [manufacturing] is not in negative zone," Bhanumurthy said.
Ahead of the release of the April-June GDP estimates, India Ratings and Research, a Fitch unit, on Wednesday predicted growth of 6.7% for the entire financial year -- a six-year low -- revising downward its January estimate of 7.3%. It further stated that it would be the third consecutive year of subdued growth, which was held back by a slowdown in consumption demand, erratic monsoons, a decline in manufacturing growth, and other factors.
Sunil Kumar Sinha, principal economist at the agency, pointed out that the government's goal of India becoming a $5 trillion economy from $2.7 trillion at present "appears unrealistic."
Last week, Moody's Investors Service also cut India's GDP growth forecast for the 2019 calendar year to 6.2% from an earlier estimate of 6.8%. "India's economy remains sluggish on account of a combination of factors, including weak hiring, financial distress among rural households, and tighter financing conditions due to stress among nonbank financial institutions," it said.