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Last Updated : Dec 02, 2019 08:06 PM IST | Source: Moneycontrol.com

GDP growth slows to 4.5% in Q2 FY20, worst in six years

India is now staring at the real possibility of a sub-6 percent annual GDP growth in 2019-20, the first since 2012, amid a stuttering world economy and plunging sentiments at home.


India’s gross domestic product (GDP) grew 4.5 percent in July-September 2019, the lowest since the fourth quarter of 2012-13, confirming fears of a deepening slowdown in the economy as households aren't spending enough to buoy demand and companies aren't adding capacities or hiring more.

India is now staring at the real possibility of a sub-6 percent annual GDP growth in 2019-20, the first since 2012, amid a stuttering world economy and plunging sentiments at home.

Gross Value Added (GVA), which is GDP minus taxes and is seen as a more realistic gauge to measure economic activity, grew 4.3 percent in July-September 2019, compared to 4.9 percent in the previous quarter and 6.9 percent in the second quarter of the previous year.

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The data mirrored the markers about the economy's poor health coming out from car showrooms, retail malls and the rapidity of activity in farms.

The slowdown comes on the back of the 5 percent GDP growth recorded in April-June and 7.1 percent in July-September last year.

The farm sector grew 2.1 percent in the second quarter of 2019-20, reflecting the very late arrival of monsoon rains this year, affecting sowing in the summer kharif crop, India's main harvest.

The manufacturing sector, which accounts for about 75 percent of the country's factory output, contracted 1 percent in July-September 2019, broadly echoing that people are putting off purchases on aspirational items such as cars and televisions.

According to Society of Indian Automobile Manufacturers (SIAM) data, passenger vehicle sales declined 23.7 percent during July-September.

Private final consumption expenditure (PFCE), a proxy to measure household spending, grew 5.06 percent (at constant) prices in July-September 2019 compared to 9.8 percent in the same quarter last year.

Slowdown was visible across other sectors as well. Construction sector GVA grew 3.3 percent in July-September 2019 compared to 5.7 percent in the previous quarter and 6.8 percent in the second quarter of the previous fiscal year.

Similarly, GVA in real estate during the quarter grew 5.8 percent compared to 7 percent in the previous quarter and 6.3 percent in July-September 2018.

There has been pressure building up on the government to engineer a quick turnaround through appropriate policy interventions, despite a string of measures in the recent months.

On September 20, 2019, in a mini-Budget of sorts, Finance Minister Nirmala Sitharaman announced major changes in corporate income tax rates, in a fresh set of measures to revive growth in the broader economy.

The government has slashed the corporate income tax rate from 30 percent to 22 percent for all companies. Inclusive of cess and surcharges the effective corporate tax rate in India now comes down to corporate tax to 25.17 per cent.

Newer companies, which are set up after October 1, 2019, will be subjected to an even lower effective tax rate of 17 percent.

On August 23, 2019, Sitharaman announced a slew of measures to fix the economy that appeared to be falling off a cliff.

The government rolled back some of the controversial measures introduced in the union budget for 2019-20, including the enhanced surcharge levied on capital gains made by foreign portfolio investors (FPIs) investing in India’s equity markets. There were specific measures to stoke demand, including a rejig of its spending programme by front-loading it, addressing supply-side bottlenecks and easing bank credit rules, even as she promised to end “tax terrorism" that has left businesses jittery.

Two more sets of measures followed, including an amalgamation of public sector banks and a fund to boost the beleaguered realty sector.

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First Published on Nov 29, 2019 05:33 pm
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