Government Releases GDP Growth Data For July-September Economic Growth Slows

Yashwant Sinha

The dismal second-quarter GDP figures are "on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure", according to the SBI, which revised downward the whole fiscal year growth rate to 5% from its earlier 6.1% projection.

However, Aditi Nayar, principal economist at Icra Ltd, said the sequential uptick in growth of private consumption expenditure is at odds with evidence from various sectors that show subdued consumption sentiment in rural as well as urban areas.

His comments came just hours after latest government figures showed that Gross Domestic Product had contracted to 4.5% in the July-September quarter - the slowest growth rate in more than six years, and the sixth straight quarter of slowdown.

"Domestic demand is displaying chronic weakness, with an apparent credit crunch afflicting wide swaths of the economy", Taimur Baig, chief economist at DBS Group Holdings Ltd.in Singapore, said before the GDP data.

All eyes are now on the use of the monetary policy tool through more rate cuts, with most economists expecting RBI to cut repo rate by 25 basis points in the upcoming December policy meet.

The economy had a weak performance last quarter with the GDP growth rate dropping to 5 percent.

As many as six of eight core industries saw a contraction in output in October.

Electricity registered a growth rate of 0.4% during Q2 of 2019-20, as opposed to 7.5% in Q2 of 2018-19. "GDP is expected to pick in the quarter three", he said.

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"As it is becoming apparent that even festive demand has not been able to lift consumer sentiment and consumption demand, we believe 2HFY20 growth is also likely to be lacklustre resulting in an overall GDP growth of 5.6 per cent 2019-20".

The Modi government took a number of steps, including the corporate tax cut in September, to boost investment and support economic growth.

The GDP growth rate had also been predicted by experts.

The sector grew by 3.6 percent as compared to growth of 8.7 percent in Q2 2018-19.

India needs to grow at around 8% a year to create enough jobs for the millions of young people joining the labor force each year, yet many economists see the current slowdown continuing for another year or two, underlining the case for urgent reforms. "Sector-specific measures and increased government spending could be the quickest way to boost growth in the near term".

The slowdown in Asia's third-largest economy took a turn for the worse this year as consumers curbed spending, businesses held back on investments and export demand slumped.

"It will become hard to reduce the interest rates on corporate borrowings even when RBI reduces the policy rate, the transmission may not take place".

"While Q2FY20 CPI inflation was broadly within the Reserve Bank of India (RBI's) estimates, the 4.62% reading for October was well above the estimates led mainly by food prices especially due to inclement weather".

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