India's nominal GDP growth has seen the sharpest fall in 20 years

  • Before accounting for inflation, the slowdown in the pace of India’s economic growth would seem nearly seven times worse than it does right now
  • The corporate profit-to-GDP ratio for Nifty 500 companies dropped to a 15-year low of 2.8% in FY18, the Ambit report said.
  • Recent rate cuts and tax cuts may boost growth but the government will have to push through meaningful strategic disinvestment to fund the stimulus.
India’s economic slowdown is real. A new research from Ambit shows that the country’s nominal GDP (Gross Domestic Product) growth ⁠— the pace of growth before deducting inflation ⁠— has seen the sharpest fall in twenty years.

“Nominal GDP growth has fallen by 870 basis points, compared to Real GDP growth that is down 125 basis points,” Ambit’s November 2019 report said. This essentially means that before accounting for inflation, the slowdown in the pace of India’s economic growth would seem nearly seven times worse than it does right now.

Finance Minister Nirmala Sitharaman has already ruled out a ‘quick recovery’ from the current slump. Hope floats that the emergency measures taken by the government as well as the Reserve Bank of India will turn the tide.


The missteps and the correction

At the end of 2018, India had one of the highest lending rates in the world. If the real interest rate⁠— the rate of interest on loans minus the inflation rate ⁠— is too high, it may act as a disincentive for investors who look to raise money from the market or banks to set up or grow their business.

The corporate profit-to-GDP ratio for Nifty 500 companies dropped to a 15-year low of 2.8% in FY18. the Ambit report said.


The RBI’s push to bring lending rates down may set off investors who were sitting on the fence due to high cost of funds. Under Governor Shaktikanta Das, the RBI has cut the benchmark interest rates by 135 basis points this year alone. But much of it is yet to trickle down to the borrowing counters.

The recently announced tax cuts have the potential trigger investments and kickstart a virtuous cycle of growth, employment and consumption.

But the fund these stimulus measures, the government needs money and that will come only from strategic divestment. The budget has a goal of ₹ 1 trillion but so far, in recent years, stake sale by the government has been merely financial⁠— money has moved from one pocket of the government to another.

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