INDIAN ECONOMY: Was there really a deep slowdown in 4QFY19?

India’s real GDP/GVA growth decelerated to 20-quarter slowest growth of 5.8%/5.7% YoY in 4QFY19, much lower than the market consensus of 6.3%/6% (our forecast of 6.2%/5.9%). It implies that real GDP/GVA grew 6.8%/6.6% in FY19, lower than market consensus (and our forecast) of 6.9%/6.7% and the government's estimate of 7%/6.8%. Although the headline data will increase the pressure on the BRI to cut rates this week, it would be wise to dig deeper into GVA/GDP data and understand if there is really a slowdown. Five key highlights from 4QFY19 GVA/GDP data are:

-- Although the headline growth appears alarming, the details are a bit puzzling. As against the general expectation of consumption slowdown, investments were the key driver of slower growth in 4QFY19, while total consumption (private + government) grew faster at 8.1% in 4QFY19 v/s 7.9% in 3QFY19. What more, services sector growth was at 6-quarter high of 8.4% in 4QFY19. Could the deceleration in investments/manufacturing sector be attributable to uncertainty regarding the general elections and thus, temporary in nature?

-- A decline of 0.1% YoY in farm sector output drove lower GVA growth. Non-farm GVA grew 6.8% YoY in 4QFY19 (versus 7.1% in the previous two quarters).

-- After adjusting for the base effect (of 8.1% growth in 4QFY18), real GDP/GVA growth was 7%/6.8% in 4QFY19, same as in the first three quarters of FY19.

-- Implied gross domestic savings (= gross capital formation + net imports) fell further from 27.7% of GDP in FY18 to 27.4% in FY19.

-- Finally, while core revenue spending (excluding interest payments) of the central government declined at 12-year high of 13.2% YoY in 4QFY19 (suggested by monthly data), nominal government consumption expenditure (GCE grew at 4-quarter high of ~16%. To offset this, lower foreign trade deficit in 4QFY19 (suggested by monthly data) was not reflected in GDP data.

Overall, the headline growth of sub-6% in 4QFY19 will increase the pressure on the RBI to cut rates next week. However, the details suggest that base effect and a decline in farm sector account for the majority of slowdown in 4QFY19. High base effect (of 8% growth in 1QFY19) will keep growth subdued in 1QFY20 as well with probable revival from 2QFY20, and thus, we expect real GDP growth to weaken further to 6.5%-6.6% in FY20.

Your comments/suggestions would be highly appreciated.