While Finance Minister Nirmala Sitharaman debates whether India is officially in 'recession' or ONLY a 'slowdown', the fiscal second-quarter GDP data today revealed one thing for sure: the economy is in deep pain, and needs immediate action for revival. India's GDP growth fell to 4.5 per cent in Q2 FY 2019-20, which is even worse than the six-year low GDP growth rate of 5 per cent in the first quarter of the current fiscal year. The figure is barely in-line with what the street had feared. A Reuters poll had predicted India's July-September 2019 GDP growth at 4.7%, while a Bloomberg poll had expected it to be 4.5%.
India’s GVA stood at 4.3 per cent in Q2 FY20. Quarterly GVA at Basic Prices for Q2 2019-20 from 'Agriculture, Forestry and Fishing' sector grew by 2.1 per cent; 'Mining and Quarrying' sector grew by 0.1 per cent; and 'Manufacturing' sector contracted by 1 per cent.
Though Finance Minister Nirmala Sitharaman said that the Indian economy is moving at a faster rate than the global economy, a continued slowdown in the country has now cast its shadow in almost all quarters of the economy. Investment advisor Sandip Sabharwal said earlier today that the Ministry of Finance and the Prime Minister's Office must focus on growth revival, leaving false bravado, to provide jobs for more than one crore youth added to the workforce every year. "Any growth figure below 5% is effectively a recession in India," Sandip Sabharwal wrote in a tweet.
A major reason that may have hit the country's overall growth is a severe contraction in the manufacturing sector. Quarterly GVA at basic prices for Q2 2019-20 from 'Manufacturing' sector contracted by 1.0 per cent as compared to a growth of 6.9 per cent in Q2 FY19. IIP manufacturing registered a contraction of 0.4 per cent during Q2 FY20 as compared to 5.6 percent during the same quarter previous year. The economy has continued to slow its momentum despite a slew of measures announced by the government to boost demand and consumption.
After the pessimistic macroeconomic results of the first quarter, FM Nirmala Sitharaman announced measures such as bank recapitalisation, the mergers of 10 PSU banks into four, aid for the auto sector, new infrastructure spending plans, tax benefits for startups, reduction in corporate tax, etc.
These measures appear to have not brought cheer to the Indian economy in the fiscal second quarter, even as the government expects the results to show in the coming quarters. Various rating agencies had projected India's economy to further decline in the second quarter, blaming subdued domestic demand and weak investment activity for the slow growth.
What may bring more concern for the economy is the fiscal deficit target for the complete year, which is facing a double-edged sword. While the government's fiscal measures to boost the economy are poised to make a hole in the revenue, a continued slowdown in the first half of the fiscal year may make it more worrisome. Also, the Narendra Modi-led government has not revised down the annual target for the fiscal deficit till now.