Explained: Why GDP rate at 4.5% now makes RBI projection hard to achieve

In July-September, manufacturing growth slumped to (-)1.0 per cent as against 6.9 per cent growth last year, while the “agriculture, forestry and fishing” sector recorded a growth rate of 2.1 per cent as against 4.9 per cent last year. GVA growth for the construction sector also slowed to 3.3 per cent in July-September from 8.5 per cent year ago.

Most economists expected GDP growth rate for the second quarter to slow down to sub-5 per cent level, with most projections hovering in the 4.2-4.7 per cent range. GDP growth rate for April-June was recorded at 5.0 per cent.

At 4.5 per cent, the GDP growth rate is much lower than 5.3 per cent projected for July-September by the Reserve Bank of India (RBI) in its October policy.

For the country to clock a growth rate of 5 per cent for the full 2019-20 financial year, it would now have to grow at least 5.2 per cent in the remaining two quarters of this fiscal.

With declining household savings and lower buoyancy in government’s revenue collections, there will be limited fiscal space to spur economic growth and the monetary policy tool — through more rate cuts — could be relied on to boost growth going ahead.

The slowdown in economy is also expected to adversely affect income growth which, in turn, would further dent consumption demand. A favourable low base effect, however, would be seen third quarter onwards, which will help push the headline growth number higher.

Don’t miss from Explained: Why Mauritius is calling UK an ‘illegal colonial occupier’ over a tiny set of islands