India's Economic Slowdown

Why Should We Be Worried?

-  AAMOD VAIRAGKAR, Legal Analyst, AIR Law Academy & Research Centre, Nagpur

India’s economic growth dropped to a six-and-a-half-year low of 5% in the April-June quarter of 2019-20 due to a sharp deceleration in the manufacturing sector and sluggish agriculture output, according to official data released on 30th August 2019. The previous low was recorded at 4.9% in April-June 2012-13. The economic growth was 8% in the same quarter of 2018-19. The Reserve Bank had marginally lowered the GDP growth projection for 2019-20 to 6.9% from 7% earlier in the June policy and underlined the need for addressing growth concerns by boosting aggregate demand.

“Real GDP growth for 2019-20 is revised downwards from 7% in the June policy to 6.9% - in the range of 5.8 to 6.6% for first half of 2019-20 and 7.3 to 7.5% for the second half - with risks somewhat tilted to the downside,” RBI had said in the monetary policy statement. Meanwhile, China’s economic growth was 6.2% in April-June quarter of 2019, which was the weakest expansion in 27 years. This is also the first time since then that India has recorded two consecutive quarters of sub 6% growth.

The Gross Value Added (GVA) growth in the manufacturing sector tumbled to 0.6% in the first quarter of this fiscal from 12.1% expansion a year ago. Similarly, farm sector GVA growth remained subdued at 2% as compared to 5.1% in the corresponding period of the previous fiscal. Construction sector GVA growth too slowed to 5.7% from 9.6% earlier. However, mining sector growth climbed to 2.7% from 0.4% a year ago.

On the same day as the CSO report, the Finance Ministry announced the move of consolidating 10 public sector banks into 4, indicating its resolve to address the slowdown in GDP growth.