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Slowing economy is cause for worry

Last Updated 08 September 2017, 19:35 IST

The 5.7% growth in GDP during the April-June quarter is the lowest in the last three years and is cause for concern over the prospects of the economy — which has been on a steady decline over the past five quarters. The 5.7% growth is quite a fall from the 7.9% recorded in the same quarter in the previous fiscal. That drop of over 2% means a loss of Rs 3 lakh crore to the economy, which could have a crippling impact on investment and jobs. A breakdown of the data is even more disconcerting. Most sectors with a high employment quotient have been badly hit. Manufacturing, which was expected to get a boost from the ‘Make in India’ programme, barely rose by 1.2%. In fact, private sector manufacturing actually decelerated by 0.9%. Although hopes were pinned high on agriculture, thanks to a good monsoon, it, too, was a letdown with a 2.3% growth, against 2.5% in the year-ago period.

Last year’s demonetisation exercise and the uncertainties associated with the transition to the GST system from July 1 have done much to dampen economic activity. The actual slowdown may have started in 2016 and demonetisation may have accentuated it. Private investment has been low in the last few quarters as the corporate debt burden remains high. There were problems with capacity utilisation. Banks, under the stress
ofnon-performing assets, continue to be wary of extending credit to the industry, although the interest rate regime itself is not unfavourable. Floods and drought in some parts of the country may have had an impact. Farm incomes and revenues were stressed. There was lower demand in the economy and external demand was weak. Some states resorted to fiscal tightening, which added to the problem, although some others went to the other extreme, with measures like farm loan waivers whose consequences will be felt in the coming quarters.

Finance Minister Arun Jaitley and others in the government have finally conceded the slowdown, although they still won’t accept the part that demonetisation has played in it. The Economic Survey had earlier noted that deflationary pressures are present in the economy and the annual growth target is likely to be missed. The consumer sentiment is still weak. A likely good harvest augurs well but that may not be enough. The data showed that the services sector had reasonably good growth but the performance may not be sustained. Jaitley has said that there is a need to take more policy measures to boost growth and investment. Reviving demand and investment is key to improving growth, and the government may have to increase its capital expenditure. Over all, there is much to be done to reverse the economic slide.

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(Published 08 September 2017, 19:35 IST)

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