India’s GDP figures for the September quarter decelerated to 4.5 which is slowest in over six years. This is the fifth consecutive quarter to have witnessed a fall. Manufacturing witnessed negative growth in the second quarter.
In ‘gross value added’ (GVA) terms, the economy grew at 4.3% compared to 4.9% in the previous quarter.
Industrial production shrank by 4.3% in September, registering the weakest performance in seven years due to output decline in manufacturing, mining and electricity sectors. Data for the eight core infrastructure industries showed output declining by 5.8 percent in October – six out of eight core industries saw a contraction in output. Coal production fell steeply by 17.6 per cent, crude oil by 5.1 per cent, and natural gas by 5.7 per cent. Decline was also seen in production of cement, steel, and electricity.
India’s fiscal deficit in the first seven months is at 102.4 per cent of the budgeted target for the current financial year. With growth rate on decline, core sector (eight key industries) on contraction, fiscal deficit widening and retail inflation on rise – all these indicating the severity of the economic slowdown.
GDP is slowing on account of a weak manufacturing, falling consumer demand and private investment, and a drop in exports.
It means government’s tax collection as well as corporate revenue growth will remain in slow lane. For common man it will mean an ongoing agrarian crisis that is unlikely to get better any time soon. Income will not grow or grow slowly. This will impact consumption demand for sometime. Lower demand will likely impact production thereby leading to job losses and unemployment.
Government has initiated some measures like corporate tax cut in September but whether that will boost investments and bolster economic growth only coming quarters will show. However steps to support real estate and non-bank finance companies are a case of too little, too late. Moreover, inconsistencies in policy stance means that plan of $5 trillion economy will take some time.
Some ways to revive economic growth momentum can be through accelerated government spending on infrastructure projects such as roads, railways and ports, as well as urban infrastructure such as affordable housing and hospitals. Some substantial reforms on issues like judicial and bureaucratic delays will need to be undertaken, especially with regard to faster rectification of cases related to payments or contractual issues.
Most importantly, as Dr Manmohan Singh highlighted, trust needs to be restored in the society and government will need to move away from atmosphere of suspicion – “This toxic combination of deep distrust, pervasive fear and a sense of hopelessness in our society is stifling economic activity and hence economic growth.”
He pointed out that policy makers are scared to speak the truth and industrialists live in fear of harassment and bankers are scared to make new loans. Revival of economy can begin when it is recognized, as Dr Singh pointed out, that society cannot be separated from economy in any nation.
(The views expressed above are the author’s own. Newsd neither endorses nor is responsible for the same.)