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Last updated: 02 Jun, 2020  

India.Growth.9.Thmb.jpg GDP data: Economy needs more support

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Bikky Khosla | 02 Jun, 2020

India's GDP growth rate fell to 3.1 percent in the last quarter of FY 2019-20 against 5.7 percent rise reported for the like period of the previous fiscal, resulting in 4.2 percent fall in overall growth for the whole fiscal, from 6.1 percent in FY19. Last year, the economy faced several challenges, and now the latest figures indicate that India has entered the Coronavirus crisis with multiple wounds, and the worst is yet to come amid the COVID-19 lockdown beginning the last week of March 2020.

A deeper look into the data shows that the manufacturing sector contracted by 1.4 percent in the fourth quarter, from 2.1 percent expansion a year ago. This is the third straight quarterly contraction registered by the sector. Similarly, the construction sector contracted 2.2 percent from 6 percent expansion earlier. Other sectors, such as electricity, gas, water supply and other utility services segment and trade, hotel, transport, communication and services segment also contracted.

Meanwhile, core sector data for April 2020 shows a massive 38 percent decline. All the eight core industries contracted, led by a massive decline in cement and steel production. Then again, the latest IHS Markit India Manufacturing PMI index points to a substantial decline in the manufacturing sector in the month of May. This is the second month of decline in a row, which is, no doubt, due to lower production during the lockdown period.

So, the latest GDP data as well as other data sets indicate that our macro number are likely to get uglier in first quarter of the current financial year. The full effect of the lockdown is yet to manifest, and some economy watchers view that GDP may contract by a massive 45 percent in the June quarter. Therefore, the economy at this juncture, needs more government support. The economic package announced recently was well and good, but it seems the need of the time is a direct fiscal stimulus rather than a roundabout way to giving relief.

I invite your opinions.

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