Slowdown Saga: Manufacturing downturn pulls Q2 GDP growth to 4.5%

Andrew Cummings
November 30, 2019

Gross fixed capital formation, which represents investment demand in the economy, decelerated to 1% in the September quarter after picking up in the preceding three months, while private consumption showed sequential improvement, expanding by 5.1%.

Economists surveyed by Reuters said on Friday that the Indian economy is likely to expand at its weakest pace in over six years in the June-September quarter, in the face of a slowdown in the consumer demand and private investment.

Data released by the department for promotion of industry and internal trade, ministry of commerce and industry, showed that the core sector, which comprises eight infrastructure industries, contracted by 5.8% in October, the second consecutive month of contraction, signalling the worst may not be over for the manufacturing sector.

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.

"GDP figures released today are as low as 4.5 per cent".

Prices in Q2 of 2019-20 is estimated at Rs 35.99 lakh crore, as against Rs 34.43 lakh crore in Q2 of 2018-19, showing a growth rate of 4.5 per cent.

Sitharaman blamed the autumn in flawed home product (GDP) recount within the final two monetary years on the lagged create of the stress on banks due to non-performing resources (NPAs) or substandard loans and ballooning corporate debt.

At 6.1 per cent, nominal GDP growth is the lowest we have seen in last few years, except for quarter ending March 2009.

Mr Singh said that there is no denying that Indian economy is going through a "sharp slowdown" and will have "disastrous consequences".

The Reserve Bank had lowered the GDP growth projection for 2019-20 to 6.1 per cent from earlier forecast of 6.9 per cent.

The GDP growth figure is as per our estimate for Q2 FY20.

"With the government (Centre and States) deficit and borrowing itself running at 8-9 per cent, there is limited headroom from the financial savings of the financial sector", Brickwork Ratings' Chief Economic Advisor M.Govinda Rao, told IANS. Things might look up in November on the back of a post-monsoon pickup in production and a favourable base year, the review said. All the indicators ranging from IIP, electricity consumption to core inflation rate were pointing towards the fact that the economy has not entered the revival path.

"Economists in a separate Reuters poll predicted the Reserve Bank of India would cut its repo rate for the sixth time in a row, by 25 basis points, to 4.90% at its December 3-5 meeting".

Some economists, however, said economic growth could pick up in the second half of the current fiscal year, after the government took steps to support real estate and non-bank finance companies. The RBI has so far this year reduced rates by 1.35 percentage points to 5.15%. Measures taken by the government should boost growth in H2, however we will closely monitor high-frequency data. "Reinforcing confidence of stakeholders in the ecosystem will be one of the biggest challenges for the government to tackle; there are no easy fixes", said Arun Singh, Lead Economist at Dun and Bradstreet India.

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