GDP growth falling for 6 consecutive quarters

After overtaking China as the fastest growing big economy in the world in 2015, India has reported its lowest GDP growth rate in three years for the April-June quarter.

Two jolts for the Narendra Modi government on the economy front in as many days. First RBI annual report showed that the bold move of demonetisation did not go for the Modi government as planned. And, yesterday, the official GDP data showed that growth rate declined to 5.7 per cent for the March-June 2017 quarter. It was 7.9 per cent the corresponding quarter last fiscal.

Though, decline in growth rate was being speculated post-demonetisation, the government maintained that it would not affect the growth rate much. Former Prime Minister Manmohan Singh had predicted a decline of two per cent in the GDP growth rate figures following demonetisation. The decline in GDP growth figures has bettered his prediction.

The slowdown was most steep in manufacturing, construction and mining sectors while most services post higher growth than last year. Higher growth was largely propelled by government spending.

GDP DECLINES FOR 6TH STRAIGHT QUARTER

By the end of 2015, India had emerged as the fastest growing world economy overtaking China. In the first quarter of 2016 - January-March period - the GDP growth rate was 9.2 per cent. This gave rise to aspiration that India might actually attain a double-digit growth rate.

But, since January-March 2016 quarter, the GDP growth rate has been continuously declining. In April-June 2016 quarter, GDP growth rate slipped to 7.9 per cent - a decline of 1.3 per cent over the previous quarter. It dropped further to 7.5 per cent in the quarter ending September 2016. Demonetisation was yet to be announced.

Demonetisation hit the nation on November 8 mid-way through the September-December 2016 quarter, which saw GDP growth rate slipping to 7.0 per cent. Post-demonetisation, the first quarter of January-March this year registered 6.1 GDP growth rate - a sharp decline of nearly 3 per cent year-on-year basis.

ARE THESE FIGURES FINAL?

The latest GDP growth data is not the final one as it will be adjusted over next couple of years. It does not factor in the data from unorganised sectors which were hit hard by demonetisation.

Unorganised sectors constitute about 45 per cent of Indian economy. Collecting data from unorganised sectors takes time upto two-three years. Only after that the real GDP figures would be available. Given the shock that demonetisation gave to the unorganised sectors, the GDP figures are likely to go further down.

DECLINING DEMANDS, RISING NPA

Decline in manufacturing also reflects decline in demand in the domestic and foreign markets. Though, Finance Minister Arun Jaitley yesterday expressed hope that the annual GDP growth rate would be around 7 per cent. Jaitley referred to revival signals in the international markets, where demands have shown a rise.

Decline in domestic demand is accompanied by rise in NPA - the non-performing assets. Both the banks and the companies have reported rise in assets which have turned loss-making. This is corroborated by the decline in borrowing by the companies.

The Survey warned that with monetary policy having been tighter than assumed and the rupee having appreciated against the dollar, the balance of risk has shifted to the downside and it is unlikely that the upper band of the projected growth rate will be achieved.

At the same time, the report flagged risks such as an over-leveraged corporate sector and a stressed banking sector, because they could delay private investment demand revival. It also noted that farm loan waivers could add to upward pressures on inflation.

The immediate indicators of economy leave no doubt that the country is heading to another phase of slowdown. But, with Lok Sabha elections less than two years away, public expenditure is likely to see a massive increase.

A push to infrastructure, health, education, transport and manufacturing sectors is expected in the coming months. Finance Minister Arun Jaitley may have placed his hope of 7 per cent GDP growth rate on expected public spending.