The major factor in the GDP fall was manufacturing contracting by 1 per cent. A separate data showed core infrastructure industries’ output declining 5.8 per cent in October, the biggest contraction since at least 2005.
The GDP growth rate in the second quarter of the current fiscal year (April to March) is the slowest since January-March 2013 and marks six consecutive quarters of slowing growth — a first since 2012.
This despite the Narendra Modi-led government taking several steps — including slashing corporate taxes, setting up a special real-estate fund, merging banks and announcing the biggest privatization drive ever — to revive investment climate and bolster economic growth.
Also, the Reserve Bank of India (RBI) has cut interest rates five times so far in 2019, by a total of 135 basis points, to boost liquidity in the financial system amid concerns that growth momentum is slowing down. There is an expectation that the central bank may slash interest rate again at its monetary policy meeting next week.
Some surveys show business confidence is at multi-year lows.
For the first half of FY 2019-2020, the GDP growth slowed to 4.8 per cent, against 7.5 per cent recorded in the first half of 2018-19.
Speaking at a seminar, Former prime minister Manmohan Singh said the GDP growth rate of 4.5 per cent was unacceptable and worrisome.
“Aspiration of our country is to grow at 8-9 per cent. The sharp decline of GDP from 5 per cent in Q1 to 4.5 per cent in Q2 is worrisome. Mere changes in economic policies will not help revive the economy,” he said.
“We need to change the current climate in our society from one of fear to one of confidence for our economy to start growing at 8 per cent per annum. The state of the economy is a reflection of the state of its society. Our social fabric of trust and confidence is now torn and ruptured,” the senior Congress leader said.
Commenting on the GDP numbers, Economic Affairs Secretary Atanu Chakraborty said the fundamentals of the Indian economy remain strong and “growth is expected to pick up from the third quarter of FY 2019-20”.
He went on to say that the IMF has projected India’s GDP growth at 6.1 per cent in FY 2019-20 and 7 per cent in FY 2020-21 in its October report on World Economic Outlook.
India was the world’s fastest-growing economy until last year but a crisis among non-banking finance institutions — a key source of funding for small businesses and consumers — weak rural spending and a global slowdown have since led to steady deline in growth rate.
Rumi Majumdar, Economist at Deloitte India, said this was due to weak private domestic demand and exports, while growth has primarily been supported by government spending, which grew by 15.6 per cent.
Ranen Banerjee, Leader Public Finance and Economics, PwC India, said: “It becomes more imperative for a fiscal led priming as the monetary policy interventions clearly are not transmitting. Thus, just to depend on another rate cut by RBI in the upcoming meeting may not be sufficient. The situation demands coordinated fiscal priming on areas with higher multipliers and where spends could be immediate combined with a monetary policy push to address the effective transmission of rate cuts to the NBFCs.”
Sunil Sinha of India Ratings and Research said the slowdown is largely on account of the slump in consumption expenditure and degrowth in exports. “But for the government expenditure growth, GDP growth would have been much lower.”
“Investment, as measured by the gross fixed capital formation in any case, has been down for the last two quarters and again came in at just 1 per cent. This shows that the economy is passing through a declining growth momentum and there is no easy way out,” he said adding the government will have to do the heavy lifting to support growth.
Suman Chowdhury, President Ratings at Acuit Ratings and Research, said the demand slump in the automotive sector, weakness in the construction sector and lower growth in the electricity sector partly brought about by excess rainfall in September have clearly impacted the economic momentum in Q2.
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