India’s GDP growth is as bad as the worst estimates ⁠— as the economy slows down for the fifth quarter in a row

  • The economy grew 4.5% between July and September 2019 as bad as what many had predicted.

  • This puts more pressure on the Narendra Modi government which has been in the dock for the way it has handled the country’s economy.

  • Hope floats that the government’s various stimulus measures will revive a sliding economy in the months to come but the signs are less than encouraging.
The economy grew 4.5% between July and September 2019 as bad as what many had predicted. This puts more pressure on the Narendra Modi government, particularly Finance Minister Nirmala Sitharaman, which has been in the dock for the way it has handled the country’s economy.

This is the fifth straight quarterly decline in the economy’s growth rate. The manufacturing sector contracted in the quarter and that is a bad sign as the unemployment has risen sharply already. From textiles to automobiles to agriculture sector, most sectors have severe job losses due to the slump in economy.

One of the biggest drag on the economy is the parched credit economy. The collapse of the shadow banks starting from IL&FS, in addition to the existing pile of bad loans, have made banks very risk averse. The refusal to lend — no matter what the interest rate — has led the economic growth rate on a downward spiral. The growth in fixed capital formation, essentially the money available for fresh investment, was just 0.9% and that shows there is still no light at the end of this tunnel.



Value-added growth in the farm sector was just 2.1% as compared to a growth of 4.9 percent the same time last year. Fruits and vegetables account for about 43%, livestock products 39% and forestry & fisheries 18% share in this sector.

As per India Ratings projection, second quarter could have grown at around 4.7%. This had prompted the agency to revise its GDP growth forecast for FY20 to 5.6%, going down sharply from 6.1% earlier. As per the agency, the second quarter growth was slower than by What is more alarming is that this is the fourth time that the agency revised its forecast.

Hope floats that the government’s various stimulus measures will revive a sliding economy in the months to come but the signs are less than encouraging.

India's fiscal deficit at the end of October was ₹7.20 lakh crore — that's a little more than what it had aimed for at the end of March 2019.

Fiscal deficit is the amount of money spent by the government over and above its earnings. The government had set itself a target of 3.3% in the latest budget in July 2019, after the Narendra Modi government was reelected in May.

However, at this stage, it seems that the government's finances will stretched more than it wanted to partly because of slowing economic growth that has led to fall in tax revenues particularly the collection of Goods and Services Tax.

The higher the fiscal deficit, the more weaker the rupee gets. Rise in fiscal deficit can also increase the government's borrowing expensive. Fiscal deficit is a measure of how prudently the government manages its finances.

The deficit can be controlled either by reducing expenses or boosting income in the remaining months of the year. But as it seems right now, the economic growth in the second quarter of the year i.e. between July and September may fall below 5%, according to many estimates. That would be mean a further fall in tax revenue and wider-than-expected deficit.

SEE ALSO:
India has overshot its deficit target halfway into the year
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