Written by Talent KAS

Related Topics: Indian Economy, GDP


  • India’s economy grew by merely 5 per cent in the April-June quarter, down from 5.8 per cent in the previous quarter, according to GDP data released by National Statistical Office (NSO).
  • The previous low in GDP growth was recorded at 4.3 per cent in the January-March quarter of 2012-13.

Quarterly GDP Estimate

  • The data show that the manufacturing sector grew at an anaemic two-year low of 6% in the first quarter of 2019-20, down from 12.1% in the same quarter of the previous year.
  • The agriculture sector also saw a dramatic slowdown in growth to 2% from 5.1% over the same period.
  • The plight of the real estate sector was also highlighted by the slowdown in its growth rate to 7% in the first quarter of this financial year, compared with 9.6% in the same quarter of 2018-19.

  • The growth slowdown was led by private final consumption expenditure, which grew 3.1% only.
  • Investment demand also remained lacklustre and fixed capital formation grew 4%.
  • Only government expenditure provided support to growth and increased 8.8%.
  • Electricity and power generation grew by 8.6%, compared with7% in the same quarter of the previous year.

Reasons for Slowdown

  • Slowdown in India’s GDP growth is due to both endogenous and exogenous
  • The impact from global headwinds due to the deceleration in developed economies and the Sino-American trade conflict are some of the exogenous causes.
  • India’s problem lies in the sharp decline in consumption demand even as investment demand continued to remain weak.
  • The collapse of private consumption demand from 10.6% in the fourth quarter of financial year 2017-18 to 3.1% in the first quarter of financial year 2019-20 is a real cause of concern.
  • Manufacturing growth is the chief reason for the low level of performance and the high level of layoffs and the problem here seems to be more on the demand side.

Government Interventions

  • The government has recently announced a whole host of measures to help revive the economy, aimed at easing tax rules for foreign portfolio investors, start-ups, increasing credit outflows by the banks and NBFCs, increasing demand for the auto sector, and liberalising the foreign direct investment rules for single-brand retail.
  • Finance Minister also announced a slew of banking reform measures, including merging 10 banks into four entities.

Way Forward

  • As the Economic Survey 2019 suggests, investment is a critical driver of the economy with consumption being a key force multiplier.
  • Together with steps taken by the government for the banks and the financial sector, and structural reforms, investment should continue improving and drive economy to higher growth.
  • India requires significant investment in infrastructure, manufacturing and agriculture for the rapid growth rates of the last fifteen to twenty years to be sustained.
  • In order to fulfil this it needs to create a robust financial structure that can serve the needs and demands of growing nation.
[Sources: The Hindu, Economic Times]

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