Slowing growth cause for worry

Slowing growth cause for worry

The latest GDP estimates for the October-December period, released by the Central Statistical Office (CSO), are below par and lower than the projections made by the CSO in January. The growth is estimated to have been 6.6% against the projected 7%. Growth for the full financial year is likely to be 6.9%, and that would make it the second successive year of sub-7% growth. In the current quarter, the economy may grow just 6.5%, which will be the lowest in seven quarters. There is considerable deceleration of growth from the first quarter of the year, and the latest figures and trends show that the slowdown is likely to continue. India’s growth rate is not low by the standards of large economies, and last quarter’s growth is more than that of China during the same quarter. But that provides no comfort because India’s growth needs are more than that of other countries because of high population growth. 

The figures show that all the important sectors of the economy have performed badly. Agriculture has slowed down to 2.7% in the last quarter against 4.6% last year and 4.2% in July-September. Even at the relatively higher growth rates in the past farm distress was high, and now it has worsened. According to the agriculture ministry’s data, rabi sowing has shown a shortfall of 5% because of deficient rains, and this will add to the distress. The problems in the farm sector might affect manufacturing and services, too. Rural demand and consumption expenditure have already seen a decline. Manufacturing has registered a growth of only 6.7% against 6.9% in the second quarter and 12.4% during April-June. The Index of Industrial Production (IIP) has shown a decline and the growth in eight infrastructure sectors at 1.8% is the lowest in the past 19 months.  

One reason for the slowdown may be the reduction in government expenditure during the current year. There is no fiscal room for increasing expenditure now. More importantly, the policies for economic growth, covering major sectors like agriculture, industry and services, claimed to have been put in place by the government, have not made much impact. The small and medium enterprises sector has not recovered from the effects of demonetisation. The stock markets have not seen any large inflow of capital and the global economic growth is not robust. One hopeful sign is the increase in gross fixed capital formation, which is a measure of private investment. The government will not have much to tell the people about the economy during the election campaign, and any change for the better will have to wait for the new government.