The latest estimates on economic output and growth, while not a surprise, reaffirm the fact that the ongoing six-quarter slump is still in search of a bottom . Gross Domestic Product (GDP) expanded by 4.5% from a year earlier in the July-September quarter, marking the slowest pace of expansion in six-and-a-half years. If one were to strip out government final consumption expenditure, which jumped by 15.6%, real GDP growth would have been an even more anaemic 3.1%. Of serious concern should be the stagnation in investment, reflected in the mere 1% growth in gross fixed capital formation. While the government’s decision in September to cut the corporate tax rate was clearly aimed at spurring the private sector, the indications till now are far from encouraging. Clearly, with consumption spending, the mainstay of demand, yet to regain traction, companies are likely opting to retain any gains from a lower tax outgo as cash for a rainy day rather than raise capacity or make new investments. While the National Statistical Office’s data on private final consumption expenditure suggests a slight pick-up to a 5.1% expansion, from the preceding quarter’s 3.1%, it is still only about half the year-earlier period’s 9.8% rate. Also, the sustainability of the uptick in consumption spending remains a moot point given that several other pointers, including tepid retail sales during the Deepavali festival season, offer little room for cheer.
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An analysis of the Gross Value Added (GVA) reveals that six of the eight sectors posted decelerations from the fiscal first quarter. And even though agriculture, forestry and fishing grew by 2.1% in the second quarter, nudging up from 2% in the April-June period, the pace was underwhelming when seen both in the context of the 5.1% pace posted a year earlier and the above average monsoon rains in 2019. Significantly, manufacturing shrank by 1%, in marked contrast to the year-earlier period’s 6.9% growth, again pointing to the widespread demand drought. A separate release from the government, showing output at the eight infrastructure industries that constitute the core sector contracted by 5.8% in October belies all the brave talk on the part of government officials that the momentum would revive in the third quarter. While six of the eight segments reported year-on-year declines, of particular worry is the 12.4% contraction in electricity output, hinting as it does at a lack of demand for power at the nation’s factories. It is high time officials helming the economy put aside the bravado and bluster and acknowledge the seriousness of the structural elements behind the slowdown by initiating meaningful policy reforms, even while taking steps to spur consumption through innovative fiscal measures.
