Fundamentals of Indian economy strong; Q3 GDP may pick up

Andrew Cummings
November 30, 2019

"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 said, adding theroot cause of this is the Narendra Modi government's policy doctrine that seems suspect every industrialist, banker, policy maker, regulator, entrepreneur and citizen which has halted economic development.

Reiterating that the economic fundamentals of the country were strong, Mishra said between 2014 and 2019, India's annual average GDP growth of 7.5 percent was the highest since Independence. The Secretary also expressed confidence in the GDP growth rate picking up in the October-December quarter (Q3). The National Statistics Office (NSO) on Friday released the GDP data for the second quarter of FY 2019-20.

- DK Joshi, chief economist at Crisil, said GDP growth in the second quarter is likely to be lower than in the first quarter.

"Our full-year growth forecast is revised down from 5.7 per cent earlier to about 4.5 per cent", said Nikhil Gupta, chief economist at Motilal Oswal Financial Services Ltd -- and he wasn't the only Cassandra making grim prophecies. This development comes inspite of the government's various economic moves like the merger of nine state-run banks into four, major corporate tax cuts, policy changes in the automobile sector, reduction in tax regulations to boost foreign income, attract investors and steps to increase consumer demand. Manufacturing sector's production has registered a decrease of one percent this quarter. This is a fall of 0.5 per cent points compared to the last quarter.

Heavy rainfall in August and September, as well as delayed withdrawal of the monsoon, constrained operations in the mining and construction sectors.

The growth rate has now slowed for the sixth consecutive quarter, declining by 3.6 percentage points during this period. However, capital investment growth slipped to 1% from 4%, indicating that despite rate cuts firms are putting investment on hold, while agriculture grew modestly and manufacturing contracted by 1.0%. All these sectors are counted in the employment generating sectors. Similarly, growth in trade, hotels, transport, communication and other services related to broadcasting has come down from 6.9 percent to 4.8 percent in the second quarter.

During the six-month period (April-September 2019), the Indian economy grew 4.8 per cent as against 7.5 per cent in the same period a year ago. But the growth rate of public service, defense and other services has increased from 8.6 percent to 11.6 percent in the second quarter of previous year. Gross fixed capital formation at current prices declined sharply to 1.02%, compared with 11.8% in the same quarter a year ago. It was Rs 11.16 lakh crore in the same period previous year. He expects the government will miss this year's fiscal deficit target of 3.3% of GDP as it boosts spending while tax revenue falters.

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