Explained: Why GDP rate at 4.5 pc 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 PM IST

3 min read

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.

Story continues below this ad

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

Aanchal Magazine

Aanchal Magazine is a Senior Assistant Editor with The Indian Express, serving as a leading voice on the macroeconomy and fiscal policy. With over 13 years of newsroom experience, she is recognized for her ability to decode complex economic data and government policy for a wider audience. Expertise & Focus Areas: Magazine’s reporting is rooted in "fiscal arithmetic" and economic science. Her work provides critical insights into the financial health of the nation, focusing on: Macroeconomic Policy: Detailed tracking of GDP growth, inflation trends, and central bank policy actions. Fiscal Metrics: Analysis of taxation, revenue collection, and government spending. Labour & Society: Reporting on labour trends and the intersection of economic policy with employment. Her expertise lies in interpreting high-frequency economic indicators to explain the broader trajectory of the Indian economy. Personal Interests: Beyond the world of finance and statistics, Aanchal maintains a deep personal interest in the history of her homeland, Kashmir. In her spare time, she reads extensively about the region's culture and traditions and works to map the complex journeys of displacement associated with it. Find all stories by Aanchal Magazine here ... Read More

Tags:

Express Explained GDP National Statistical Office

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.