The latest government data reveals a significant dip in the Gross Domestic Product (GDP) growth during the first quarter of the Financial Year (FY) 2019-20. The economy expanded by 5%, which is a sharp fall from the 8% recorded in the corresponding quarter last year. Notably, this is the lowest growth observed in over six years since 2013 and denotes the fifth consecutive quarterly decline. This widespread economic slowing has not been seen since June 1997. The decline is largely attributed to a sizeable decrease in consumer demand and lacklustre investment.
GDP Growth Trends
During the previous few years, consumption was the cornerstone of economic expansion. However, it plummeted to an 18-quarter low of 3.1%, down from 10.6% in the March quarter of 2018-19. Simultaneously, investments witnessed marginal improvement, growing only 4%, slightly up from 3.6% observed in the preceding quarter.
This prolonged slackening in both investment and consumer demand have considerably derailed the manufacturing sector, where growth stood at a feeble 0.6%. The farm sector, too, contributed to the slowdown with a mere 2% rise.
Automobile Sales and Job Losses
Automobile sales, often considered a reliable measure of the economy’s health, have fallen dramatically in recent months. This situation led to production cuts and job losses, further exacerbating the economic downturn.
Global Factors Affecting Indian Economy
Aside from domestic factors, global circumstances have played a part in this scenario. A weak global economy and ongoing trade tensions have stymied export growth.
According to the Reserve Bank of India (RBI), this downturn is cyclical and not structural. A structural slump would have necessitated more profound reforms.
The Impact of Policies such as Demonetisation and GST
| Policy | Impact on Economy |
|---|---|
| Demonetisation | Exacerbated slowdown in the informal sector |
| GST | Intensified difficulties for the informal sector |
Experts opine that policies such as demonetisation and the Goods and Services Tax (GST) have had an adverse effect, especially on the informal sector. This has, in turn, dealt a structural blow to aggregate demand in the economy.
Government’s Actions to Revive Growth
Recently, the government announced a series of measures aimed at revitalizing growth. These efforts are still underway, and their impact on the economy remains to be seen.
Last Modified: February 6, 2024