The National Statistical Office (NSO) has recently released provisional data suggesting that the economic growth of India has dropped to an 11-year low of 4.2% in 2019-20.
Growth in Fiscal Year 2019-20
The FY 2019-20 saw the provisional growth estimate standing at 4.2%, which was significantly lower than the Gross Domestic Product (GDP) growth budgeted estimate of 8.5%. The revised estimate had been reduced to 5% by the NSO. In comparison, the Indian economy had recorded a growth rate of 6.1% in 2018-19.
This slowdown is also reflected in the Gross Value Added (GVA) which fell to 3.9% as compared to a 6% growth in the previous year. GVA, equivalent to GDP minus net product taxes, plays a vital role in representing supply-side growth.
Furthermore, the nominal GDP growth rate, adjusted for inflation, registered a growth of 7.2% in 2019-20, a stark decline from the 11% recorded in 2018-19.
Growth in Final Quarter of 2019-20
In the last quarter of the fiscal year, covering January-March 2020, GDP growth plummeted to 3.1%, marking it as the lowest in the last 44 quarters. However, during this period, there was growth in the agriculture and mining sectors, with rates of 5.9% and 5.2% respectively. Public administration, defence and other services saw an encouraging growth of 10.1%.
On the contrary, the manufacturing sector showed a negative growth of 1.4%. Likewise, the consumption demand declined, while investments and exports both fell into negative territory.
Analysis of the growth data
The nominal GDP’s unexpected deceleration impacts the country in two ways. Firstly, it disrupts all fiscal expectations, such as revenue and spending projections. This disruption means that the government doesn’t receive anticipated revenues, which restricts budgetary expenses. Secondly, this deceleration reflects negatively on the government’s fiscal accuracy, as it indicates an inability to gauge ongoing economic slowdown.
Poor fiscal marksmanship can result in inaccurate policies, as the government might make policies that do not align with the actual state of the economy. The current situation also highlights a continuous weakening of India’s growth momentum before the onset of the Covid-19 lockdown.
Negative Growth of Manufacturing
Job creation is closely linked to the growth of the manufacturing sector. However, the data paints a bleak picture for this critical sector, with contraction in three out of four quarters during 2019.
Key Terms
GDP, GVA and Nominal GDP are crucial indicators of a nation’s economic health. GDP is the total value of a country’s yearly output of goods and services, GVA is the GDP net of subsidies and taxes, and the Nominal GDP evaluates GDP at current market prices, including changes due to inflation or deflation.
The National Statistical Office (NSO)
The NSO, the statistical agency of the Indian Government, operates under the Ministry of Statistics and Programme Implementation. Its role includes collecting, compiling and disseminating official statistical information to inform policy, planning, monitoring and management decisions. The NSO complies with international standards, procedures and best practices.
As a final note, economists suggest that due to the impact of Covid-19, GDP may contract in 2020-21. Thus, government expenditure is expected to be the key driver of growth in 2020-21. Weak commodity prices and import demand could also provide some support to growth.
