It is not surprising that India’s GDP growth has slumped to 4.5% in the July-September quarter, the lowest in the last six years, because there were clear indications of an intensifying and widespread slowdown affecting virtually every sector of economic activity. But, what is surprising is that the NDA government continues to be in a denial mode as if the downturn is just a cyclical phenomenon. This is the sixth consecutive quarter to register falling growth, led by a contraction in manufacturing and deceleration of growth in core sectors. The economy grew at 5% in the first quarter of the 2019-20 financial year. The need of the hour is to unveil fiscal measures to boost consumer demand. So far, the government’s fire-fighting efforts were largely focused on supply-side management but the need is to revive the demand. There are limitations for government spending because of its impact on fiscal deficit. Ahead of the Monetary Policy Committee (MPC) meeting later this week, there is a strong case for a more aggressive rate cut by the Reserve Bank of India. The best way for the government to spur the demand is by reducing the GST rates on a priority basis. Official data indicates a sharp contraction in manufacturing activity and exports and sluggish demand. The manufacturing sector, which was supposed to be a ray of hope to create jobs on a large scale, contracted by 1% in the July-September quarter. The gross fixed capital formation — a key indicator of investment demand in the economy — grew at only 1%, as against 4% in the June quarter and 12% in the year-ago period.
The RBI, which had scaled down the GDP growth forecast for 2019-20 to 6.1% per cent, may have to further revise it downwards, given the present indications. With no good news coming in from either the consumption or industrial front, the government can no more afford to take comfort in the argument that the slowdown was a temporary side-effect of “cleansing the system and formalising the economy”. The latest numbers mark the longest continuous deceleration in the GDP growth. Though the government has claimed that the worst was over and the economy will grow faster in the last two quarters of the current financial year, indicators from the ground and anecdotal accounts don’t reflect this optimism. India’s economy suffers from a plethora of structural problems ranging from difficulties of land acquisition, regulatory logjam, shortage of skilled manpower, labour issues, excessive taxation and rampant corruption. Urgent reforms are needed in labour and land laws and the financial sector in order to achieve the ambitious target to make India a $5-trillion economy by 2024.