Data: How government expenditure drove India’s GDP growth in the July to September quarter

Private consumption and investments fell while government spending surged in the second quarter of FY2020

A boy selling vegetables waits for customers in front of construction material for railway tracks at Navapura on the outskirts of Ahmedabad on November 28, 2019.

In the latest quarter (July to September 2019-20), India’s Gross Domestic Product grew at the slowest pace in 6.5 years. Also, the growth was not fuelled by private consumption or investment, the prime drivers of the economy, but through government spending which surged in recent quarters.

Among the slowest

GDP grew at 4.5% in the latest quarter. It is the third slowest rate of growth since FY06. The graph shows GDP growth rate across two base years: 2004-05 and 2011-12. The base year for quarterly growth rate from Q1 FY06 to Q4 FY12 is 2004-05 while that for growth rate from Q1 FY13 to Q2 FY20 is 2011-12.

Slump continues

 

Fuelled by the government

Private Final Consumption Expenditure (PFCE) which reflects consumption picked up marginally in the latest quarter. However, Gross Fixed Capital Formation (GFCF) which reflects investments slipped further in the latest quarter. But, Government Final Consumption Expenditure (GFCE) which denotes government expenditure recorded a steep rise.

Government help

 

As it can be seen from the chart, the 4.5% growth achieved in the latest quarter was primarily fuelled by government spending as both consumer demand and investments were down.

Gloomy industry

The fall in consumption and investment impacted the industry segment in the latest quarter. Particularly the manufacturing sector, which contracted by -1%, and the mining sector which saw a minute rise of 0.1%, recorded the second slowest growth rates since FY15. The construction sector slipped further while the agricultural sector remained stagnant.

Industry loses

 

Riding on services

The growth of the service sector was not as muted as the industry segment. However, it too recorded many lows. Trade, hotel, transport services registered the slowest growth in the latest quarter since FY15. The only component which saw a steep rise was the public administration and defence services which were mostly fuelled by the government.

Service sector uptick