India’s growth rate for April-June 2019 slipped to 5 per cent compared to 8 per cent in the corresponding period last year, as per the latest data from the Central Statistic Office (CSO) released on Friday. The growth slowest in 25 quarters is being attributed to a sharp deceleration in the manufacturing sector and sluggish agriculture output.
On August 8, the Reserve Bank of India had pegged the economy to grow in the range of 5.8-6.6 per cent in the first half (April-September), down from its June forecast of 6.4-6.7%. “Real GDP growth for 2019-20 is revised downwards from 7 per cent in the June policy to 6.9 per cent – in the range of 5.8-6.6 per cent for firs half of 2019-20 and 7.3-7.5 per cent for the second half – with risks somewhat tilted to the downside,” RBI had said in the monetary policy statement.
The growth rate had slipped to a five-year low of 5.8 per cent in January-March 2018-19, owing to poor performance in the agriculture and manufacturing sectors. This was the lowest growth rate in 20 quarters and puts India behind China after almost two years. The rate was lower than this at 5.3 per cent in the last quarter of UPA II or January-March 2013-14. The growth in gross domestic product during the 2018-19 fiscal stood at 6.8 per cent, lower than 7.2 per cent in the previous financial year. The GDP growth was slowest since 2014-15 as the previous low was 6.4 per cent in 2013-14.
The RBI in its annual report recommended strengthening both the banking and non-banking sectors, a “big push” to infrastructure spends and implementation of structural reforms in labour laws and taxation.
Taking note of the economic downturn, the government had announced a slew of measures last week which included removal of the surcharge on capital gains on shares for both foreign and domestic investors, an upfront Rs 70,000-crore equity infusion into public sector banks to boost lending, and measures to push automobile sales. While the government refrained from providing an outright fiscal stimulus given the tight fiscal deficit targets, Sitharaman said more policy measures will be taken in the coming weeks.
Earlier in the day, Sitharaman announced a series of mergers of banks to form major Public Sector Banks (PSB) in order to revive and revitalise the banking sector with the objective of achieving the $5-trillion economy target. The finance minister announced the merger of Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and United Bank of India with a business of Rs 17.95 lakh crore and a network of 11,437 branches, making it the second-largest PSB in the country.
Earlier in the day, the rupee appreciated by 12 paise to 71.67 against the US dollar following positive developments in the US-China trade talks. Renewed hopes for negotiation between Donald Trump and Xi Jinping after Beijing indicated that it may not retaliate against the latest tariffs imposed by the US helped the domestic currency.