Growth falls to 4.5 per cent in Q2, lowest in 6 years

New Delhi: It may be a shocker, but true. Beating all estimates predicted recently by leading rating agencies, banks and surveys, India’s economic growth, or gross domestic product (GDP), shrank further to an unexpected level, hitting an over six-year low of 4.5 per cent in the July-September quarter, down from five per cent in the previous quarter.

Confirming the fear of economic slowdown, the data also mirrored its justification of lower growth due to a number of factors, including weak private consumption, mute investment and exports, lack of credit growth and demand in the market. The current slowdown was visible across other sectors as well.

According to the data released by the National Statistics Office (NSO), the GDP was at the previous low of 4.3 per cent in the January-March period of 2012-13, while it was registered at seven per cent in the corresponding quarter of 2018-19. “The growth in gross value added, or GVA, in the manufacturing sector contracted by one per cent in the September quarter, compared with an expansion of 6.9 per cent last year. Similarly, farm sector GVA growth remained subdued at 2.1 per cent, down from 4.9 per cent in the year-ago period,” it said.

“Also, construction sector GVA grew 3.3 per cent in July-September 2019, compared to 5.7 per cent in the previous quarter, and 6.8 per cent in the second quarter of the previous fiscal year. Similarly, GVA in real estate during the quarter grew 5.8 per cent, compared to seven per cent in the previous quarter and 6.3 per cent in July-September 2018,” it added.

For last over a month or so, both domestic and international rating agencies had cut the gross domestic product or GDP growth forecast, ranging between 6.2 and 4.7 per cent this financial year. Out of all agencies, Care rating agency estimated the highest of 6.2 per cent Q2 GDP growth, while Reuters Polls showed the lowest of 4.7 per cent a day before, but the government data settled an unexpected number at 4.5 per cent.

The Narendra Modi government recently took several measures to boost investments and bolster economic growth. These include withdrawal of the super-rich surcharge imposed on foreign investors, exemption of start-ups from “angel tax”, the infusion of Rs 70,000 crores in public sector banks, a significant cut in the corporate tax rate and slashing of the lending rate by the RBI five times this year.

However, the government is hopeful that the steps by the finance ministry will show positive results by next quarter onwards. “The fundamentals of the Indian economy remain strong. GDP growth is expected to pick up from the third quarter of FY 2019-20,” said Atanu Chakraborty of the department of economic affairs.

Economists hope that the Reserve Bank may cut its repo rate for the sixth time in a row, by 25 basis points, to 4.90 per cent at its December 5 meeting. “Economic growth is picking up in the second half of this fiscal, after the government took steps to support real estate and non-bank finance companies,” they went on to say,

Despite the several steps, analysts and experts and the Opposition, however, raised a hue and cry over the economy’s downward trend, saying the government didn’t do enough to address the slowdown in demand for the past 2-3 years. “Declining demand is among the prime reasons for the slowdown,” they claimed.

The data indicates that the economy started falling gradually since demonetisation in November 2016, though the GDP in Q2FY17 was 8.87 per cent at that point. It has been also observed that all key sectors felt the heat and the GDP shrank gradually. After the demonetisation, GDP was registered at 6.77 per cent in Q2 FY18, followed by seven per cent and 4.5 per cent in Q2 FY19 and Q2 FY20 respectively.

Former Prime Minister Manmohan Singh said a GDP growth rate of 4.5 per cent was unacceptable and worrisome. “The aspiration of our country is to grow at 8-9 per cent. The sharp decline of GDP from five per cent in Q1 to 4.5 per cent in Q2 is worrisome. Mere changes in economic policies will not help to revive the economy,” he added.