**Executive Summary**
This document is the Department of Economics Affairs, Ministry of Finance's Monthly Economic Report for March 2019, published on May 1, 2019. It provides an overview of the Indian economy, noting a slight slowdown in 2018-19 despite being the fastest growing major economy. The report addresses factors contributing to the slowdown and potential mitigating factors.
**Key Points / Main Content**
* **Economic Overview:**
* Real GDP growth in Q4 of 2018-19 was lower, as signaled by slowing real import growth.
* The current account deficit as a percentage of GDP improved in Q3 and is set to further improve in Q4.
* Gross Fiscal Deficit of the Centre has declined in recent years, while capital expenditure has been volatile.
* **Domestic Demand:**
* Private consumption in Q4 of 2018-19 declined, reflected in slower two-wheeler sales.
* Government consumption expenditure firming up in Q4 of 2018-19.
* Fixed investment as a percentage of GDP has been trending up since 2017-18, but this trend may pause.
* **Sectoral Growth:**
* GVA growth in agriculture has been slowing since Q1 of 2018-19 and may continue to fall in Q4.
* GVA growth in industry in 2018-19 will be higher than in the previous year.
* GVA growth in services has been robust in 2018-19.
* **Money Market:**
* Recent cuts in repo rate are yet to transmit to weighted average lending rate of banks.
* Credit growth could have been challenged by continuous tightening of bank liquidity causing the call money market rates to trend up since Q1; however, some respite is evident in Q4.
* **External Sector:**
* The nominal exchange rate has been appreciating in Q3 of 2018-19, yet the net flow of portfolio investment remained negative.
* Real effective exchange rate has been appreciating in Q3 of 2018-19.
* Foreign Exchange Reserves in terms of months of import cover has fallen from 14 months from April 2016 to 9 months in October 2018; however, the import cover has been increasing since then.
* **Inflation:**
* Headline inflation declined in 2018-19.
* **Outlook:**
* The growth outlook is upbeat.
**Impact Analysis**
**Government (Department of Economics Affairs, Ministry of Finance):**
* **Impact:** The report provides an assessment of the current economic situation, which helps the government in policy formulation and decision-making.
* **Action Required:** Utilize the insights from the report to formulate and implement appropriate economic policies.
**Financial Institutions (Banks, Investors):**
* **Impact:** The report informs financial institutions about the economic trends, influencing their lending and investment decisions.
* **Action Required:** Adjust investment and lending strategies based on the economic outlook and sectoral growth analysis.
**Businesses:**
* **Impact:** The report provides insights into demand, sectoral growth, and external sector performance, aiding businesses in planning and strategy.
* **Action Required:** Adapt production, investment, and expansion plans based on the economic analysis and sectoral growth trends.
**Citizens:**
* **Impact:** The report provides a general understanding of the economic situation, which may affect consumer confidence and spending patterns.
* **Action Required:** While there is no direct action required, the information may influence consumer behavior and financial planning.
Key Entities Referenced
Ministry of Finance: Responsible for the fiscal policies of the government.
Department of Economic Affairs: A department within the Ministry of Finance, responsible for economic management and policy formulation.
Monthly Economic Report: A publication providing an overview of the Indian economy's performance.
Department of Economics Affairs
Ministry of Finance
Monthly Economic Report
March 2019
Date of publication: 1st May 2019The Indian economy is the fastest growing major economy and is projected to grow faster in the coming
years. However, India’s economy appears to have slowed down slightly in 2018-19. The proximate
factors responsible for this slowdown include declining growth of private consumption, tepid increase
in fixed investment, and muted exports. On the supply side, the challenge is to reverse the slowdown in
growth of agriculture sector and sustain the growth in industry. On the external front, current account
deficit as ratio to GDP is set to fall in Q4 of 2018-19, which will limit the leakage of growth impulse
from the economy. The fiscal deficit of the central government has been gliding down to the FRBM
target. Monetary policy has attempted to provide a fillip to the growth impulse through cuts in repo
rate and easing of bank liquidity. The room for this monetary easing has been created by low inflation
in 2018-19, although it has started to inch up in last few months of the year. The real effective exchange
rate has appreciated in Q4 of 2018-19 and could pose challenges to the revival of exports in the near
future. Increase in foreign exchange reserves in Q4 of 2018-19 on account of improvement in trade
balance has increased the import cover for the economy.
1. Economic Overview
The implied real GDP growth in Q4 of 2018-19 was lower; slowing of real growth rate of imports
signal this slowdown in GDP growth.
Fig 1: Real growth of GDP (%) Fig 2: Growth rate of real imports (%)
10.0 45.0
Annual growth Quarter wise growth
9.5
40.0
9.0
35.0
8.5
30.0
8.0
25.0
8.2
7.5
20.0
2nd RE
7.0
15.0
6.5 7.2
1st RE 7.0 10.0
6.0 2nd AE 5.0
5.5
0.0
5.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016-17 2017-18 2018-19
Note: Growth of Q4 2018-19 is implied. Note: Real import is calculated by dividing nominal
imports with headline WPI
While Gross Fiscal Deficit of the Centre has steadily declined in last few years, capital expenditure
has been volatile.
Fig 3: Gross fiscal deficit as % of GDP (Centre) Fig 4: Capital expenditure as % of GDP (Centre)
1.9
3.9 1.7 1.7
1.5
3.5
3.5
3.4
2015-16 2016-17 2017-18 2018-19 (RE) 2015-16 2016-17 2017-18 2018-19 (RE)
2Headline inflation – measured using the consumer and wholesale price indices declined in 2018-19
though inflation has firmed up slightly in recent months.
Fig 5: GDP deflator (inflation) (%) Fig 6: CPI and WPI inflation (%)
5.0 7.0
Annual Quarter-wise CPI-C WPI
6.0
4.0
5.0
4.2
3.0 4.0
3.8
3.0
3.1
2.0
2.0
1.0
1.0
0.0
0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-- 21 .. 00 6 1 -rp
A
6 1 -n
u J
6 1 -g
u A
6 1 -tc
O
6 1 -c
e D
7 1 -b
e F
7 1 -rp
A
7 1 -n
u J
7 1 -g
u A
7 1 -tc
O
7 1 -c
e D
8 1 -b
e F
8 1 -rp
A
8 1 -n
u J
8 1 -g
u A
8 1 -tc
O
8 1 -c
e D
9 1 -b
e F
2016-17 2017-18 2018-19
Note: GDP deflator for Q4 2018-19 is implied.
Current account deficit as percent of GDP improved in Q3 and is set to further improve in Q4 of
2018-19 as dip in imports has improved the merchandize trade deficit.
Fig 7: Current account deficit (as % of GDP) Fig 8: Net merchandise export as % of
merchandise import
23 .. 50 Apr- 2D .6ec % 2018 6 1 -r p
A
6 1 -lu
J
6 1 -tc
O
7 1 - n
a J
7 1 -r p
A
7 1 -lu
J
7 1 -tc
O
8 1 - n
a J
8 1 -r p
A
8 1 -lu
J
8 1 -tc
O
9 1 - n
a J
2017-18 -15.0
1.9%
2.0
-20.0
2015-16
1.5 -25.0
1.1%
1.0 2016-17 -30.0
0.6%
0.5 -35.0
0.0 -40.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
-45.0
-0.5
2015-16 2016-17 2017-18 2018-19
2. Domestic Demand
In line with declining real GDP growth, private consumption in Q4 of 2018-19 has also declined as
reflected in the drop of growth of two-wheeler sales towards the end of the year.
Fig 9: Private consumption expenditure growth (%) Fig 10: Growth of no. of two wheeler sales (%)
12.0 Annual growth Quarter-wise growth 70.0
10.0 60.0
50.0
8.0
8.3 40.0
6.0 8.2
30.0
4.0 7.4 20.0
2.0 10.0
0.0
0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -10.0
2016-17 2017-18 2018-19 -20.0
-30.0
Note: Growth of Q4 2018-19 is implied.
3The expected firming up of government consumption expenditure in Q4 of 2018-19 is on course as
growth in cumulative revenue expenditure of the central government has been higher in recent
months.
Fig 11: Government consumption expenditure Fig 12: Cumulative revenue expenditure
growth (%) growth (excl. interest payment & subsidy) (%)
25.0 Annual growth Quarter-wise growth 40.0
35.0
20.0
30.0
25.0
15.0
15.0 20.0
10.0 15.0
10.0
8.9
5.0
5.8 5.0
0.0
0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016-17 2017-18 2018-19
Note: Govt consumption growth for Q4 2018-19 is implied. Note: Cumulative expenditure from April to each month
in a financial year
Though fixed investment as percentage of GDP has been trending up since 2017-18, this trend may
pause for a while, also evident in slowing down of growth in non-food bank credit in Q4 of 2018-19.
Fig 13: Fixed investment rate (%) Fig 14: Growth of non-food bank credit (%)
30.5
18.0
Annual share Quarterly share
30.0 16.0
29.5 14.0
29.0 12.0
10.0
28.5
28.9
8.0
28.0
28.6
6.0
27.5
28.2
4.0
27.0
2.0
26.5
0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
6 6 6 7 7 7 7 8 8 8 8 9
1 1 1 1 1 1 1 1 1 1 1 1
Note: Data
f2 o0 r1 6 Q-1 47
2018-19 is
i2 m01 p7 l- i1 e8
d.
2018-19 -rp
A
-lu
J
-tc
O
-n
a J
-rp
A
-lu
J
-tc
O
-n
a J
-rp
A
-lu
J
-tc
O
-n
a J
43. Sectoral Growth
Growth in GVA in agriculture has been slowing since Q1 of 2018-19 and may continue to fall in Q4
as well; moderation in food deflation may soften this decline towards the end of the year.
Fig 15: Growth in gross value added in agriculture & Fig 16: Consumer food price inflation (%)
allied (%)
8.0
Annual growth 6.0
7.0 Quarter-wise growth
5.0
6.0
4.0
6.3
5.0
3.0
4.0 5.0 2.0
3.0
1.0
2.0 2.7
0.0
1.0
-1.0
0.0
-2.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
-1.0
-3.0
2016-17 2017-18 2018-19
Note: Growth of Q4 2018-19 is implied. -4.0
Growth of GVA in industry in 2018-19 will be higher than in the previous year, thereby overcoming
the effect of the slowing down of IIP growth in recent months.
Fig 17: Growth in gross value added in industry (%) Fig 18: Index of Industrial production growth (%)
12.0
12.0
Annual Quarterly
IIP-General IIP-Manufacturing
10.0 10.0
8.0 8.0
6.0 6.0
7.7
5.9 7.7
4.0 4.0
2.0 2.0
0.0 0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 6 1 6 1 6 1 6 1 6 1 7 1 7 1 7 1 7 1 7 1 7 1 8 1 8 1 8 1 8 1 8 1 8 1 9 1
2016-17 2017-18 2018-19
-2.0
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
Note: Growth of Q4 2018-19 is implied.
Growth of GVA in services has been robust in 2018-19, as evident in PMI services which remained
above 50 throughout the year.
Fig 19: Growth in gross value added in services (%) Fig 20: Nikkei India PMI for services
11.0 56
Annual Quarterly
10.0
54
9.0
52
8.0
8.4
7.0 50
8.1
7.4
6.0
48
5.0
46
4.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
44
2016-17 2017-18 2018-19 6 16 16 16 16 17 17 17 17 17 17 18 18 18 18 18 18 19 1
-rp A-n
u
J-g
u
A-tc O-c
e
D-b
e
F-rp A-n
u
J-g
u
A-tc O-c
e
D-b
e
F-rp A-n
u
J-g
u
A-tc O-c
e
D-b
e
F
Note: Growth of Q4 2018-19 is implied.
54. Money Market
Though easing of monetary policy has the potential to support growth, the recent cuts in repo rate
are yet to transmit to weighted average lending rate of banks; thus the effects of the easing on
investment activity are yet to manifest.
Fig 21: Repo Rate (%) Fig 22: Weighted average lending rate (%)
6.6 11.4
6.5 11.2
6.4
11.0
6.3
10.8
6.2
6.1 10.6
6.0 10.4
5.9
10.2
5.8
6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 10.0
1 -rp
A
1 -n
u J
1 -g
u A
1 -tc
O
1 -c
e D
1 -b
e F
1 -rp
A
1 -n
u J
1 -g
u A
1 -tc
O
1 -c
e D
1 -b
e F
1 -rp
A
1 -n
u J
1 -g
u A
1 -tc
O
1 -c
e D
1 -b
e F
6 1
-rp A
6 1
-n u J
6 1
-g u A
6 1
-tc O
6 1
-c e D
7 1
-b e F
7 1
-rp A
7 1
-n u J
7 1
-g u A
7 1
-tc O
7 1
-c e
D8 1
-b e F
8 1
-rp A
8 1
-n u J
8 1
-g u A
8 1
-tc O
8 1
-c e D
Note: In April 2019, the repo rate reduced at 6.0%
Credit growth could have been challenged by continuous tightening of bank liquidity causing the
call money market rates to trend up since Q1; however, some respite is evident in Q4.
Fig 23: Bank Liquidity (Rs. thousand crore) Fig 24: Call money market rate (%)
400.0 6.8
300.0
6.6
200.0
100.0 6.4
0.0
6 6 6 6 6 77 7 7 7 7 88 8 8 8 8 99 6.2
-100.0 1 1 1 1 1 11 1 1 1 1 11 1 1 1 1 11
-200.0
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e
F-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e
F-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e
F-rp
A 6.0
-300.0 -1 0 -1 0 -1 0 -1 0 -1 0 -1 0-1 0 -1 0 -1 0 -1 0 -1 0 -1 0-1 0 -1 0 -1 0 -1 0 -1 0 -1 0-1 0 5.8
-400.0
-500.0 5.6
6 6 6 6 6 7 7 7 7 7 78 8 8 8 8 89
-600.0 1 1 1 1 1 1 1 1 1 1 11 1 1 1 1 11
Note: +ve is liquidity shortage, -ve is liquidity surplus.
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
-rp
A
-n
u J
-g
u A
-tc
O
-c
e
D-b
e F
-rp
A
-n
u J
-g
u A
-tc
O
-c
e
D-b
e F
5. External Sector
Nominal exchange rate has been appreciating in Q3 of 2018-19; yet net flow of portfolio investment
remained negative.
Fig 25: Nominal exchange rate (Rs./US$) Fig 26: Net flow of portfolio investment (US$
billion)
74.0 15.0
72.0
10.0
70.0
68.0 5.0
66.0
0.0
64.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
62.0 -5.0 2016-17 2017-18 2018-19
60.0
-10.0
6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F -15.0
6Real effective exchange rate has been appreciating in Q3 of 2018-19, which may have impacted
growth of exports towards the end of the year.
Fig 27: Growth of real effective exchange rate (%) Fig 28: Cumulative exports growth (%)
4.0 20.0
3.0 16.0
2.0
12.0
1.0
8.0
0.0
4.0
-1.0
-2.0 0.0
7 7 7 7 7 8 8 8 8 8 8 9
1 1 1 1 1 1 1 1 1 1 1 1
-3.0 -r p A -n u J -g u A -tc O - c e D - b e F -r p A -n u J -g u A -tc O - c e D - b e F
-4.0
-5.0 Note: Cumulative export from April to each month in a
financial year
Foreign Exchange Reserves in terms of months of import cover has fallen from 14 months from
April 2016 to 9 months in October 2018; however, the import cover has been increasing since then.
Fig 29: Foreign exchange reserves (US$ billion) Fig 30: No. of months of Import cover of FER
440.0 15
420.0 14
13
400.0
12
380.0
11
360.0
10
340.0
9
320.0
8
6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9 9
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9
-ra
M
-y
a M
-lu
J
-p
e S
-v
o N
-n
a J
-ra
M
-y
a M
-lu
J
-p
e S
-v
o N
-n
a J
-ra
M
-y
a M
-lu
J
-p
e S
-v
o N
-n
a J
-ra
M
1
-rp A
1
-n u J
1
-g u A
1
-tc O
1
-c e D
1
-b e F
1
-rp A
1
-n u J
1
-g u A
1
-tc O
1
-c e D
1
-b e F
1
-rp A
1
-n u J
1
-g u A
1
-tc O
1
-c e D
1
-b e F
6. Inflation
Not only do fuel and food inflation directly drive the CPI headline inflation they do so indirectly as
well by spilling over into other sectors of the economy as captured by core inflation.
Fig 31: CPI-fuel and CPI-food inflation (%) Fig 32: CPI-core inflation (%)
10.0 7.0
CPI-fuel & light CPI-food 6.5
8.0 6.0
5.5
6.0 5.0
4.5
4.0 4.0
3.5
2.0
3.0
2.5
0.0
2.0
6 6 6 6 6 7 7 7 7 7 7 8 8 8 8 8 8 9
-2.0
1 -rp
A
1 -n
u J
1 -g
u A
1 -tc
O
1 -c
e D
1 -b
e F
1 -rp
A
1 -n
u J
1 -g
u A
1 -tc
O
1 -c
e D
1 -b
e F
1 -rp
A
1 -n
u J
1 -g
u A
1 -tc
O
1 -c
e D
1 -b
e F
7 1
-r p A
7 1
-n u J
7 1
-g u A
7 1
-tc O
7 1
- c e D
8 1
- b e F
8 1
-r p A
8 1
-n u J
8 1
-g u A
8 1
-tc O
8 1
- c e D
9 1
- b e F
-4.0
77. Outlook
The growth outlook is upbeat as the SENSEX/NIFTY-50 have risen in Q4 of 2018-19; inflationary
expectations are subdued as reflected in the fall in yields on short-term govt. paper.
Fig 33: Growth of SENSEX (S&P BSE) and Fig 34: Yield on Treasury bill (%)
NIFTY-50 (%)
25.0 8.0 Yield on 91 day T-Bill of Central
SENSEX Govt (%)
7.5
20.0 NIFTY-50 Yield on 364 day T-Bill of
Central Govt (%)
7.0
15.0
6.5
10.0 6.0
5.5
5.0
5.0
0.0 6 1 6 1 6 1 6 1 6 1 7 1 7 1 7 1 7 1 7 1 7 1 8 1 8 1 8 1 8 1 8 1 8 1 9 1
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
-rp
A
-n
u J
-g
u A
-tc
O
-c
e D
-b
e F
2017-18 2018-19
*****
8