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

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.

Written by Aanchal Magazine , Edited by Explained Desk | New Delhi | Updated: November 30, 2019 12:44:17 pm
Explained: Why GDP rate at 4.5% now makes RBI projection hard to achieve The slowdown in the economy is also expected to adversely affect income growth which, in turn, would further dent consumption demand. Express Photo by Gajendra Yadav

India’s GDP growth rate slipped to a 26-quarter low of 4.5 per cent in July-September, dragged lower by a contraction in manufacturing growth, data released by National Statistical Office showed. The previous low for the country’s GDP growth was 4.3 per cent during January-March 2012-13.

Growth rate in terms of Gross Value Added (GVA), which is GDP minus net product taxes, has slowed to 4.3 per cent in July-September as against 6.9 per cent a year ago. With this, GDP growth rate for April-September, the first half of this fiscal, is now at 4.8 per cent as against 7.5 per cent growth in the year-ago period.

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.

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