Dark days? Economy slows down.

Dark days? Economy slows down.

Slowdown saga continues: GDP growth slows to 4.5% in Q2 FY20, worst in 6 years

Fifth successive quarter of decline and slowest GDP growth rate over six years

Agency Report | New Delhi | 29 November, 2019 | 08:00 PM

India is now staring at the real possibility of a sub-6 percent annual GDP growth in 2019-20, the first since 2012, amid a stuttering world economy and plunging sentiments at home.

A massive contraction in manufacturing, agriculture and mining activity pulled India’s GDP growth rate down to 4.5 per cent in the second quarter ended September 2019-20.

This is the fifth successive quarter of decline and the slowest GDP growth rate over six years. The growth on a year-on-year basis during Q2 2018-19 had stood at 7 per cent.

On a sequential basis, the growth rate came lower than the 5 per cent in Q1 of 2019-20, 5.8 per cent in Q4 2018-19, 6.6 per cent in Q3 2018-19.

At present, India’s economy faces a severe demand slowdown on account of high GST rates, farm distress, stagnant wages and liquidity constraints.

This trend of subdued consumption, referred to as slowdown is being cited by economy watchers as the prime reason for the successive fall in GDP growth rate.

Consequently, all the major sector’s including automobile, capital goods, banks, consumer durables, FMCG and real estate have been heavily battered.

In terms of production, the output of manufacturing, mining and electricity generation among others have plunged causing job losses.

Contraction in India’s eight major industries continued for the third consecutive month in October as the output pace receded by (-)5.8 per cent.

According to the Index of Eight Core Industries, October’s contraction was in line with the sharp plunge of 5.1 per cent registered in September.

The contrast in output pace was even more evident on a year-on-year basis, when the growth rate stood at 4.8 per cent in October 2018.

The eight core industries include coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.

According to the Index of Eight Core Industries, barring refinery products, all the other seven sectors contracted in October.

The core sectors comprise 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP).

India’s gross domestic product (GDP) grew 4.5 percent in July-September 2019, the lowest since the fourth quarter of 2012-13, confirming fears of a deepening slowdown in the economy as households aren’t spending enough to buoy demand and companies aren’t adding capacities or hiring more.

Gross Value Added (GVA), which is GDP minus taxes and is seen as a more realistic gauge to measure economic activity, grew 4.3 percent in July-September 2019, compared to 4.9 percent in the previous quarter and 6.9 percent in the second quarter of the previous year.

The data mirrored the markers about the economy’s poor health coming out from car showrooms, retail malls and the rapidity of activity in farms.

The slowdown comes on the back of the 5 percent GDP growth recorded in April-June and 7.1 percent in July-September last year.

The farm sector grew 2.1 percent in the second quarter of 2019-20, reflecting the very late arrival of monsoon rains this year, affecting sowing in the summer kharif crop, India’s main harvest.

The manufacturing sector, which accounts for about 75 percent of the country’s factory output, contracted 1 percent in July-September 2019, broadly echoing that people are putting off purchases on aspirational items such as cars and televisions.

According to Society of Indian Automobile Manufacturers (SIAM) data, passenger vehicle sales declined 23.7 percent during July-September.

Private final consumption expenditure (PFCE), a proxy to measure household spending, grew 5.06 percent (at constant) prices in July-September 2019 compared to 9.8 percent in the same quarter last year.

Slowdown was visible across other sectors as well. Construction sector GVA grew 3.3 percent in July-September 2019 compared to 5.7 percent in the previous quarter and 6.8 percent in the second quarter of the previous fiscal year.

Similarly, GVA in real estate during the quarter grew 5.8 percent compared to 7 percent in the previous quarter and 6.3 percent in July-September 2018.

There has been pressure building up on the government to engineer a quick turnaround through appropriate policy interventions, despite a string of measures in the recent months.

On September 20, 2019, in a mini-Budget of sorts, Finance Minister Nirmala Sitharaman announced major changes in corporate income tax rates, in a fresh set of measures to revive growth in the broader economy.

The government has slashed the corporate income tax rate from 30 percent to 22 percent for all companies. Inclusive of cess and surcharges the effective corporate tax rate in India now comes down to corporate tax to 25.17 per cent.

Newer companies, which are set up after October 1, 2019, will be subjected to an even lower effective tax rate of 17 percent.

On August 23, 2019, Sitharaman announced a slew of measures to fix the economy that appeared to be falling off a cliff.

The government rolled back some of the controversial measures introduced in the Union Budget for 2019-20, including the enhanced surcharge levied on capital gains made by foreign portfolio investors (FPIs) investing in India’s equity markets. There were specific measures to stoke demand, including a rejig of its spending programme by front-loading it, addressing supply-side bottlenecks and easing bank credit rules, even as she promised to end “tax terrorism” that has left businesses jittery.

Two more sets of measures followed, including an amalgamation of public sector banks and a fund to boost the beleaguered realty sector.

India’s budgetary fiscal deficit for the April-October period came in at 102.4 per cent, or Rs 7.20 lakh crore, of the budget estimates (BE), official data showed on Friday.

The government has targeted the fiscal deficit to be at Rs 7.03 lakh crore for 2019-20.

According to the Controller General of Accounts (CGA) data, the fiscal deficit during the corresponding months of the previous fiscal was 103.9 per cent of that year’s target.

The Central government’s total expenditure stood at Rs 16.54 lakh crore (59.4 per cent of BE) while total receipts were Rs 9.34 lakh crore (44.9 per cent of BE).

Besides, the total expenditure for the period under review comprised Rs 14.53 lakh crore on the revenue account, while Rs 2.01 lakh crore was on capital expenditure.

Total receipts comprised Rs 6.83 lakh crore of net tax revenue and Rs 2.24 lakh crore of non-tax revenue receipts. (IANS)