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Last updated: 03 Sep, 2019  

Up.Down.Arrow.9.Thmb.jpg GDP concern: Time to fight the slowdown

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SME Times News Bureau | 02 Sep, 2019

Gross Domestic Product (GDP) growth of the country grew 5 percent in the April-June period of 2019-20 as compared to 5.8 percent in the last quarter of the financial year and 7.8 percent in the same quarter of the previous financial year. This marks the fourth successive quarter of decline in growth on the trot. The latest figures came as a surprises to most economists. They, no doubt, fuel pessimism, but this could be the bottom for the current slowdown.

A deeper look into the latest GDP figures reveals that agriculture and allied activities fell sharply to 2 percent in the quarter compared to 5 percent in the same quarter of FY19. This, however, does not raise much concern as the first quarter is associated more with residual Rabi harvest. Second, manufacturing growth has been just 0.6 percent against 12.1 percent last year. These figures clearly reflect the current slowdown in the auto and durable goods segments.

The slowdown is being felt also in the services sector. Two key contributors to GDP -- trade, communication etc. and finance, real estate etc. – registered a growth of 7.1 percent and 5.9 percent respectively. The unsteady state of the NBFC segments can be blamed for this. This situation must be reversed for a turnaround in these segments. However, it is a relief that services sector activity in July returned to growth territory as indicated by the IHS Markit India Services Business Activity Index.

While the April-June GDP figures are not at all encouraging, they neither signal to an imminent doom, but the situation certainly calls for some fiscal stimulus by the government. It is widely expected that the RBI is likely to deliver another 40 bps in rate cuts this year, but it is equally true that monetary policy alone cannot help the economy at this moment. So, the government can work on a mix of both monetary and fiscal measures to address the slowdown challenge.

I invite your opinions.

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