India is set to declare economic growth data for the fourth quarter ended March 2019 on Friday. Gross Domestic Product (GDP) growth is expected to slow down and the struggling economy has been cited as one of the principal challenges of the Narendra Modi government, which has been handed a second term of five years by voters. Here is a quick guide on what to expect and things to watch out for in the data on Friday.
Slowdown fears are real
The India economy grew 6.6 percent in the three months to December — the slowest pace in five quarters.
Two major industrial bodies — FICCI and CII — called on the new government to urgently take steps to bolster the economy.
Prime Minister Narendra Modi pushed through important reforms such as a unified goods and services tax and a bankruptcy law in his first five years in power, but faced flak for failing to create enough jobs for millions of people seeking employment, rising farm distress and lacklustre economic growth.
Economic growth appears to be slowing further. Car and motorbike sales have tumbled and industrial output contracted for the first time in nearly two years in March. Rural demand and manufacturing growth have also weakened.
Economists have also questioned the quality of the official economic data, saying the on-the-ground situation is far bleaker.
The new government will have limited options to boost the economy given the prevalent revenue constraints - it may need to rework its expenditure plans and deploy more funds to schemes that can help boost weak consumption in rural areas.
The government will also need support through rate cuts and liquidity measures from the Reserve Bank of India (RBI) to help bring down cost of funds for banks and make loans cheaper for consumers.
The median forecast in the latest Reuters poll showed the economy was expected to have grown 6.3 percent in the January-March quarter, the slowest annualised pace in nearly two years.
If that is correct, India will lose its title as the fastest-growing major economy for the first time in one-and-a-half years. China's economy expanded 6.4 percent during the same period.
Forecasts ranged from 5.7 percent to 7.4 percent. Only a handful of economists, six of 51, expect a faster pace than the 6.6 percent reported for the previous quarter.
However, slowing growth and subdued inflation are probably not the only reasons for further policy easing, according to some economists.
RBI rate cut on the cards
Owing to slowdown fears, the RBI is widely expected to provide policy support to enhance liquidity in the system.
The RBI will cut interest rates at a third consecutive meeting in June, according to a Reuters poll of economists who were split over whether it should.
Under Governor Shaktikanta Das, who took over as RBI governor from Urjit Patel in December last year, the central bank delivered rate cuts at its previous two meetings, in February and April.
"We expect the RBI to provide policy support to enhance liquidity in the system, including to non-bank beneficiaries. This will likely help arrest further deterioration in growth momentum," noted Sanjay Mathur, chief economist Southeast Asia and India at ANZ.
RBI will cut interest rates at a third consecutive meeting in June, according to a Reuters poll of economists who were split over whether it should.
Two-thirds of 66 economists predicted the RBI to cut its repo rate by 25 basis points at its June 4-6 meeting, bringing it to 5.75 percent -- the lowest since July 2010. It is then expected to keep policy on hold at least until the end of next year.
Creating work for an estimated 1.2 million young people entering the market each month will be a key challenge. Economists say the next prime minister will need to encourage businesses to step up investment to create job opportunities.
Unemployment rose to 7.6 percent in April, the highest since October 2016, and up from 6.71 percent in March, data from private think-tank the Centre for Monitoring Indian Economy showed.
An official survey that was withheld by the government showed India’s unemployment rate rose to 6.1 percent, the highest level in at least 45 years, in 2017/18, the
Business Standard newspaper reported in January. Sour trade ties
India’s trade relationship with major partners, including the United States and China, remains on a shaky footing.
US President Donald Trump's administration has called out India on its high tariffs, price caps on imported U.S. medical devices and rules around e-commerce trade.
Indian government officials say they fear Trump's administration will soon end preferential trade treatment for India, which allows duty-free entry for up to $5.6 billion worth of its exports to the US.
Adding to India’s troubles is the ongoing trade dispute between the US and China, which is likely to benefit countries such Japan and South Korea. India remains vulnerable to dumping of cheap Chinese imports.
Doubts over data
Economists and investors are increasingly showing that they have little or no confidence in India’s official economic data – presenting the new government with an immediate problem.
There have been questions for many years about whether Indian government statistics were telling the full story but two recent controversies over revisions and delays of crucial numbers have taken those concerns to new heights.
The government itself has admitted there are deficiencies in its data collection.
A study conducted by a division of the statistics ministry in the 12 months ending June 2017 found that as much as 36 percent of the companies in the database used in India GDP calculations could not be traced or were wrongly classified.
But the ministry said there was no impact on GDP estimates as due care was taken to adjust corporate filings at the aggregate level.
Last December, the government held back the release of jobs data but an official report leaked showed the unemployment rate had touched its highest level in 45 years.
Economists and investors are now voting with their feet – by using alternative sources of data and in some cases creating their own benchmarks to measure the Indian economy. Ten economists and analysts at banks, think-tanks and foreign funds interviewed by Reuters said they were moving to use alternative data sources, or at least official data of a different kind.
Among the numbers they prefer are fast-moving indicators like car sales, air and rail cargo levels, purchasing managers' index data, and proprietary indices created by the institutions themselves to track the economy.