How severe was India’s slowdown in April-June?
India's economic growth likely languished at a decade-low of around 4.6 percent in the April-June quarter, gross domestic product (GDP) data are expected to show on Friday, with the deepening slowdown sparing few sectors in Asia's number three economy.
"Manufacturing is weak, construction and fixed investment are growing very slowly, export‐facing industries are struggling, and even the once‐strong service sector industries have cooled in recent quarters," economists at Moody's Analytics wrote in a report on Monday.
"None of this appeared to have turned around in the three months to June, as the instability created by the weak central government continued to weigh on confidence and demand," they said.
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India, which rivaled neighboring China with its near double-digit growth rates just a few years ago, has rapidly lost momentum in recent quarters owing largely to a deceleration in investment growth.
Annual GDP growth has remained below 5 percent in the past two quarters, with the economy expanding 4.7 percent and 4.8 percent, in the December and March quarters, respectively.
Efforts by the government in the past year to attract foreign investment, such as easing foreign direct investment (FDI) limits across industries from telecoms to single-brand retail and oil and gas, have been met with a lukewarm response.
U.S. retail giant Walmart, for example, has put its India expansion plans on hold as it deals with two compliance investigations and unease over the government's regulations for foreign investment in the retail sector, the Financial Times reported on Monday.
Additionally, domestic private investment has remained sluggish amid the growth slowdown, say economists. "Private sector sentiment is really low at this time; the interest in fresh capital expenditure is very weak," said Radhika Rao, an economist at Singapore bank DBS.
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On top of this, private consumption - a key pillar of the economy that accounts for almost 60 percent of GDP - has also come under pressure in the face of slower wage growth and sticky food inflation.
"Consumption spending is unlikely to register any notable improvement as signaled by the downtrend in the durables goods production and weak passenger car sales," said Rao.
India's car sales fell an annual 7.4 percent in July, according to an industry body, marking the ninth straight month of declines on rising fuel costs and high interest rates.
"The rigidity in the retail lending and deposit rates, along with firm inflation prints also possibly eroded real income levels, limiting scope of a marked improvement in consumption levels," Rao added. High levels of inflation constrain the central bank's ability to lower interest rates.
While there is little about the economy to cheer, there is one sector that offers a glimmer of hope, say experts.
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"The only bright spot would be the agriculture sector because of the timely rains. As of date, we are running above the long-term average and we expect this to provide some support for rural incomes and agriculture output," said Rao.
India, one of the world's largest producers and consumers of agricultural commodities, is heavily dependent on the annual monsoon for its harvests of crops such as rice, sugar and cotton.
—By CNBC's Ansuya Harjani; Follow her on Twitter