India’s gross domestic product (GDP) has slipped to a new low of 5.8%, what is now regarded as a major challenge for the new government. The January – March period was somewhat of a slump for the economy, it ‘grew much slower than expected’ and dragged the overall growth to the lowest in five years in the financial year (FY) 2019.
This slowdown will place India behind China’s pace for the first time in nearly two years, with reports highlighting that the forth quarter growth was below China’s 6.4%.
The drop is attributed to poor performance in agriculture and manufacturing sectors. According to the Ministry of Finance’s month economic report, the declining growth of private consumption, tepid increase in fixed invested and muted exports are to be blamed for the declining GDP.
The report further stated that the real challenge on the supply side is to reverse the slowdown in the growth of the agriculture sector and sustain the growth momentum in the industry. Citing a slowdown in non-food bank credit in FY19 Q4, the report said the upward trend of fixed investment as a percentage of GDP might also pause for a while.
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The finance secretary, Subhash Garg said the slowdown in the fourth quarter was due to temporary factors like stress in non-banking financial company (NBFC) sector affecting consumption finance. Garg explained that the first quarter of the current fiscal would also witness relatively slow growth but would pick up from the second quarter onward with capital spending, including private investment, expected to revive. “From the second quarter onwards, we expect the growth and consumption to pick up.”
Garg express confidence with interest rates becoming much more favorable and credit coming back in the system. He said the consumption story will be very good.