Moneycontrol
Get App
Last Updated : May 31, 2019 02:26 PM IST | Source: Moneycontrol.com

North Block's first priority: Boost consumption, rev up the economy

India’s GDP growth has slipped below 7 percent (it was 6.6 percent in October-December)

Moneycontrol News @moneycontrolcom

The Bharatiya Janata Party has consistently said in their political campaigns that a second term would give them a chance to work on the present economic slowdown that the country is facing.

The Indian economy appears to be in the middle of a slowdown. India's GDP growth has slipped below 7 percent (it was 6.6 percent in October-December). The implicit calculations from the Central Statistics Office (CSO) data suggest that GDP growth will likely fall to 6.4 percent in January-March.

Taking charge in these challenging circumstances, Nirmala Sitharaman has been given the task of steering India's next course of reforms. The 59-year-old has her task cut out but she has displayed tenacity in handling tough situations during her stint as Defence Minister.

Close

Initial trends in the fourth quarter corporate results (Jan-March, 2019; India follows an April-March fiscal year) show an overall decline across sectors. In this quarter, from a sample of 400 companies more than 330 companies reported growth in their bottom lines.

Consumption demand is also showing signs of moderation as revealed by various leading indicators. People are buying fewer cars and this is showing up in deceleration in with domestic sales, production and export of automobiles. Fast moving consumer goods (FMCG) sector growth has also slowed down considerably in recent quarters, with deceleration in demand for consumer staples, such as biscuits, soaps, oil. Perhaps, significantly depressed rural prices is disturbing rural income and weak demand is affecting the consumer goods sector.

Factory output measured by the index of industrial production (IIP) contracted, for the first time in 21 months, in March 2019. This shows declining momentum of both investment and consumption. Even core industries productions of steel, electricity, coal and cement are falling or have been stagnant in recent quarters.

New investment projects announcements have declined continuously in last four years to Rs 9.76 trillion in 2018-19 from Rs 20.86 trillion in 2014-15. The share of private sector investment, however, has increased to 66 percent in 2018-19 from 44 percent in 2014-15.

A notable reason for the slowdown in investment was because of the so-called “dual balance sheet” problem, implying stressed balance sheets of Indian companies and banks. Usually, there is also some uncertainty before a national electoral cycle as people remain in a wait-and-watch mode, which gets reflected in the economic indicators.

With a landslide victory, the Narendra Modi government is now expected to bring policies that would give a boost to public consumption and demand.

India Union Budget 2019: What does Finance Minister Nirmala Sitharaman have up her sleeve? Click here for top and latest Budget news, views and analyses.
First Published on May 24, 2019 12:02 am
Loading...
Sections
Follow us on
Available On
PCI DSS Compliant