Private consumption, key factor for economic growth, has weakened: RBI

A recent Reserve Bank of India report has noted that India’s domestic economy has hit a “soft patch in the last quarter of 2018-19 as private consumption, the key driver of GDP, turned weak.” Pointing out that the economic activity “weakened in the second half of 2018-19, with Q4:2018-19 recording 5.8 per cent growth in GDP”, the report says, this has brought down “the annual growth for 2018-19 to 6.8 per cent from the previous year’s 7.2 per cent.”
According to the report, “The main drivers of GDP – investment and consumption – both turned weak. The gross fixed capital formation (GFCF) and private final consumption expenditure (PFCE) at constant market prices have displayed a lower growth rate of 3.6 per cent and 7.3 per cent respectively in Q4:2018-19. This together with a subdued new investment pipeline and a widening current account deficit have been putting pressure on the fiscal front.”
Pointing out that “these developments have implications for the government’s market borrowing programmes”, the report states, “Separately, the state finances are getting expansive as there is an increase in market borrowings”, adding, “To some extent these fiscal pressures are also spilling over to the parastatals.”
Meanwhile, the report says, "Export growth was robust during H1:2018-19 but slowed down during H2:2018-19. For the year as a whole, India’s merchandise exports' growth moderated to 8.6 per cent in 2018- 19 from 10.0 per cent in the previous year.” It adds, “India’s current account deficit widened to 2.6 per cent of GDP in April-December 2018 from 1.8 per cent a year ago.”