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Barring govt spending, growth slumps across industrial and services sectors

Government expenditure was the key component supporting GDP growth, rising by 15.6 per cent in July-September 2019 (Q2FY20) as against 10.8 per cent in July-September 2018 (Q2FY19).

Written by Sunny Verma , Aanchal Magazine | New Delhi | Published: November 30, 2019 1:39:17 am
India GDP, India economy, india economy news, india gdp second quarter, india gdp slows, recession, india recession, india economic crisis, india gdp figures, indian express Manufacturing sector output contracted by 1 per cent in Q2FY20, as against 6.9 per cent growth recorded in July-September last year, data released by National Statistical Office showed Friday.

Sectoral data on economic activity released Friday showed that growth fell sharply across the board in sectors including construction, agriculture, trade and financial services, while manufacturing sector recorded a contraction in the July-September quarter. Government expenditure was the key component supporting GDP growth, rising by 15.6 per cent in July-September 2019 (Q2FY20) as against 10.8 per cent in July-September 2018 (Q2FY19). Public administration was the only sector to record sharp rise in growth even as mining and quarrying output growth moved from contraction in Q2FY19 to barely positive of 0.1 per cent in Q2FY20.

Manufacturing sector output contracted by 1 per cent in Q2FY20, as against 6.9 per cent growth recorded in July-September last year, data released by National Statistical Office showed Friday. Growth in agriculture, electricity and construction sectors more than halved during the quarter. Expansion in the agriculture, forestry and fishing sector — a key sector for job creation in rural economy — fell to 2.1 per cent down sharply from 4.9 per cent last year. Construction growth, another key sector for job creation, fell to 3.3 per cent from 8.5 per cent. Apart from anaemic investment activity, slump in consumption as well as exports are key reasons behind sectoral slowdown.

“The overall pace of growth weakened across key sectors. The prolonged and heavy monsoon, lower demand and liquidity constraints in the economy have impacted activity across sectors. Private consumption and overall investment did not see an improvement during Q2 2019-20,” said Care Ratings chief economist Madan Sabnavis.

Barring public administration, defence and other services, which account for 12 per cent share in gross value added (GVA), growth in all other broad sectors of the economy declined sharply during the second quarter. Public administration grew at 11 per cent, the highest rate in last nine quarters, indicating that the public sector supported growth in the quarter.

Department of Economic Affairs Secretary Atanu Chakraborty Friday said the fundamentals of the Indian economy remain strong and “growth is expected to pick up from the third quarter” of FY20. Analysts said the Centre will have to take measures to boost demand, as the supply side has already been addressed through reduction in corporate tax rates. Lower taxes in the hands of consumers could likely boost growth.

Finance Ministry sources Friday said the government will not curtail expenditure but there could be some change in sectoral allocation. They maintained that the government will stick to the glide path of maintaining fiscal deficit at 3.3 per cent GDP by March-end 2020, and there will be no expansion in market borrowings. Privatisation of state-owned enterprises such as BPCL, Container Corporation of India Ltd and Shipping Corporation of India Ltd could enable the government generate resources to help demand-side of the economy.

FICCI president Sandip Somany said dip in growth was not “entirely unexpected as many of the lead indicators of economic activity were showing signs of weakness”, but things should improve in second half of current fiscal. It is equally important to address problems in rural sector where more income enhancing measures are required, he added.

“While sharp growth in central and state government spending supported the performance of public administration, defence and other services, the Centre also recorded sharp rise in revenue expenditure,” said Aditi Nayar, principal economist, ICRA. “Pace of expansion of the government’s non-interest revenue expenditure increased to a considerable 25.1 per cent in Q2FY20 from 8.7 per cent in Q1FY20. Additionally, for the 24 state governments for which data is available, revenue expenditure growth increased sharply to 16.8 per cent in Q2FY20 from the meagre 1.2 per cent in Q1FY20,” she added. Revenue expenditure mainly goes into meeting salaries and other day-to-day expenses of running the government, while capital expenditure leads to asset creation and, thereby, supports growth.

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