India's economy grew at its slowest pace in 26 quarters or six-and-a-half years in the July–September period of the current fiscal year, dragged down by contraction in the crucial manufacturing sector, piling pressure on the government to unleash fresh measures to revive growth and lift sentiment.
Data released by the National Statistical Office (NSO showed gross domestic product (GDP) grew by 4.5% in the September quarter, slower than 5% in the previous quarter and the lowest since the 4.3% expansion in the January-March quarter of 2012-13. The data disappointed many economists who had pinned their hopes on the recently-concluded festive season for a pickup in demand. The economy has been in the grip of a slowdown and several sectors such as automobiles have seen sustained contraction.
The manufacturing sector contracted 1% in the September quarter, the first decline in nine quarters, highlighting the lack of demand in the economy. This is in line with the contraction in other data such as factory output and core sector numbers. Separate data released showed the eight core sectors spanning coal, crude oil, natural gas, refinery products, fertiliser, steel, cement, electricity, which account for 40% of the index of industrial production, contracted 5.8% in October.
The government has exuded confidence that economic growth will pick up soon. It has over the past few months announced a series of measures to stimulate the economy, ranging from withdrawal of higher taxes on foreign investors, a mega merger plan for state-run lenders and a reduction in corporate taxes. The Reserve Bank of India has also been lowering the repo rate to push economic expansion. It has so far this year cut the repo rate five times by 135 basis points.
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The slowdown also triggered a political slugfest with former prime minister Manmohan Singh terming the 4.5% number as unacceptable. Chief economic adviser Krishnamurthy Subramanian said the fundamentals of the economy continued to be strong and that GDP growth will pick up in the third quarter.
FM rules out recession
Finance Minister Nirmala Sitharaman while defending the state of the economy assured that the government is taking steps in the interest of the country. “Every step being taken is in the interest of the country. Looking at the economy, you see that growth may have come down but it is not recession yet, it won’t be recession ever,” Sitharaman said in her reply to the short duration discussion on the state of the economy in Rajya Sabha.
The FM said the government has unveiled 32 steps to revive growth since her July budget and those measures were yielding results. Sitharaman compared the economic report card of the UPA and the Narendra Modi-led BJP government since 2014 saying inflation was below the targeted range and economic growth and other macroeconomic indicators under the present government was much better.