GDP sinks to 4.5%, Lowest in more than 6 yrs

The economy needs to grow at around 8 per cent to create enough jobs for the millions of young people joining the labour force each year.

New Delhi: India’s gross domestic product (GDP) growth rate fell to a 26-quarter low of 4.5 per cent in the July-September quarter (Q2) of this financial year, compared with 7.1 per cent in the same quarter of 2018-19, government data showed on Friday. The low rate of expansion was mainly on account of a weak manufacturing, falling consumer demand and private investment, and a drop in exports due to a global slowdown.

In the previous quarter (April-June 2019), the country’s economic growth had stood at a seven-year low of 5 per cent, against 8 per cent Q1 growth a year earlier.

Gross value added (GVA) growth during the second quarter stood at 4.3 per cent, against 4.9 per cent in April-June this year and 6.9 per cent in the September quarter last year. Gross fixed capital formation at current prices declined sharply to 1.02 per cent, compared with 11.8 per cent in the same quarter last year.

For the first six months of the year (April-September 2019), the economic growth came to 4.8 per cent, against 7.5 per cent in the same period last year.

In another sign of pain in the economy, official data released on Friday showed that India’s fiscal deficit in the first seven months through October stood at Rs 7.2 trillion, or 102.4 per cent of the budgeted target for the current financial year. Besides, the output of eight core infrastructure industries in the economy contracted by 5.8 per cent in October, indicating the severity of the economic slowdown, another set of official data released on Friday showed.

Raising slowdown concerns, the economists Business Standard had spoken to earlier had concurred that the economic growth rate in Q2 of this year would be between 4.2 per cent and 4.7 per cent, slower than the 5 per cent in Q1. In view of slowing rates of growth, the Reserve Bank of India (RBI) had earlier lowered its GDP growth projection for full 2019-20 financial year to 6.1 per cent from 6.9 per cent forecast previously.

Broadly in line with economists’ estimates, the Q2 GDP growth rate this year is the lowest quarterly rate since the 4.3 per cent clocked in January-March quarter of 2012-13, the year when the new GDP series had kicked in. At the time, India had been battling high inflation and political turmoil, besides global economic pressures.

Gross Facts

On Wednesday, Finance Minister Nirmala Sitharaman had countered the opposition’s remarks on a “deepening economic crisis in the country” in the Rajya Sabha, stating that growth may have slowed down but the economy will never experience a “recession”.

Growth in ‘agriculture, forestry and fishing’ and ‘mining and quarrying’ was at 2.1 and 0.1 per respectively, whereas ‘manufacturing’ activity contracted 1 per cent.

The GDP data for the latest quarter comes at a time when stress in the country’s financial sector, slowing demand, multi-year low auto sales and weak industrial production have hampered economic growth. India lost its position as the world’s fastest growing major economy last year. The government has set a target of making the country a $5-trillion economy by 2024.

The economy needs to grow at around 8 per cent to create enough jobs for the millions of young people joining the labour force each year; yet many economists see the current slowdown continuing for another year or two.

5.8% Core sector growth shrinks in October. According to the government data, output of eight core infrastructure industries contracted by 5.8 per cent in October. The severity of economic slowdown can be gauged from the fact that as many as six of eight core industries saw a contraction in output in October.

Fiscal Deficit

The government of India’s fiscal deficit has surpassed the annual target within the first seven months of the current financial year. India’s fiscal deficit in the first seven months through October stood at Rs 7.2 trillion ($100.32 billion), or 102.4 per cent of the budgeted target for the current fiscal year, government data showed on Friday.

According to government data, the net tax receipts in the April-October period was Rs 6.83 trillion, while total expenditure was Rs 16.55 trillion.

The total revenue government received in the period was Rs 9,34,460 crore, which included Rs 6,83,486 crore in tax revenue, Rs 2,24,148 crore in non-tax revenue, Rs 26,826 crore in non-debt capital receipts.

In Figures

Rs 16,54,905 cr is total expenditure incurred by the government of India in April-October 2019 period, out of which Rs 14,53,632 crore is on Revenue Account and Rs 2,01,273 crore is on Capital Account.

Rs 2,89,565 cr was on account of interest payments while Rs 2,26,724 crore was on account of major subsidies.

Rs 3,66,871 cr has been transferred to state governments as devolution of share of taxes by the Centre. It is Rs 10,205 crore lower than the previous year.