By our special correspondent
The gross domestic product (GDP) in India grew at 5 per cent in April-June 2019, the slowest since 2013, on account of subdued economic activity in sectors, from services and manufacturing, to agriculture and construction. But more importantly, the economy grew at 8 per cent in nominal terms — courtesy low levels of inflation — the slowest since the third quarter of 2002-03, taking into consideration the previous two series of national accounts.
Nominal GDP growth is a proxy for growth in incomes, and the current slowdown signals a sharp fall in the latter. Further, the Union Budget has assumed an 11 per cent nominal growth rate, and a tax revenue growth rate of more than 15 per cent. The fiscal balance of the Union and state governments could see trouble because poor nominal growth adversely affects tax collection.
Various high-frequency indicators such as sales of passenger and commercial vehicles; production of capital goods, consumer durables, steel and cement; use of air travel, among others, had shown contraction, or poor growth, in the April-June period. The official growth estimate falls in line with this trend. Chief Economic Advisor Krishnamurthy Subramanian, however, attributed the slowdown chiefly to a global economic downturn.
According to him Impact comes, especially, from global headwinds due to deceleration in developed economies, Sino-American trade conflict etc. Similar phenomena were observed previously during Q4 2012-13 and Q4 2013-14, when growth was around 5 per cent,” he said in a series of tweets.slowest rates since the new national accounts series began in 2012. Investments (gross fixed capital formation) grew at 4 per cent, reflecting poor sentiment among investors and big companies.
Government expenditure grew at a faster rate than the economy.
Experts raised concern over the grim picture of the economy. “There are both structural and cyclical issues are plaguing the Indian economy. As construction/real estate are biggest employers after agriculture, reviving real estate is crucial for an uptick in investment and consumption,” said Devendra Pant, chief economist at India Ratings.
Manufacturing stagnated, growing just 0.6 per cent over the same quarter of the previous year. The sector has seen protracted slow growth since FY18. The services sector grew at just below 7 per cent in real terms. Only thrice in the last seven years have services grown slower than this.
Agriculture and construction grew at 2 per cent in Q1 FY20. These sectors traditionally provide millions of jobs to farm and industry labourers in the unorganised sector. A slowdown in the June quarter appeared more pronounced due to an unfavourable base effect, too, because the economy had grown at 8 per cent in the first quarter of FY19.The next two months will be crucial for the Indian economy, which is facing the worst growth slowdown in six years, as per official GDP data released on August 30.
State Bank of India (SBI) Chairman Rajnish Kumar told several business dailies that the next two months will be critical in terms of reviving the economy.While the government has been busy announcing bank mergers and minor policy reforms, economists have made it clear that such measures will not play a decisive role in economic revival.The decision to merge non-performing banks with anchor banks–those performing much better–could turn out to be a fruitless move, according to many economists who feel that it would only increase complications.
Considering that past bank mergers have not turned out the way they were envisaged, there are several doubts over the fresh move announced by Finance Minister Nirmala Sitharaman.The government should focus on measures that will enhance bank and NBFC lending rather than further complicate the situation with bank mergers, according to many economists.While the slowdown would probably continue for the next quarter, it is high time the government focuses on fixing the liquidity crisis, which has choked lending to most MSMEs, and reducing the tax burden on individuals and companies.Who’s to blame for the slowdown?
