India's economic growth plunges to six-year low of 5%

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India's Annual Gross Domestic Product (GDP) for 2019-20 slowed down to 7-year low at 5 percent as against 8 percent in previous fiscal and 5.8 percent for Q4 2018-19, government data showed on Friday. The latter had recorded a 20-quarter low economic growth of 5.8 per cent.

It may be noted that the GDP has been slowing down quarter after quarter reaching 5% in April-June period of FY20 from 8% during Q1 of 2018-19.

"Real GDP growth for 2019-20 is revised downwards from 7 per cent in the June policy to 6.9 per cent - in the range of 5.8-6.6 per cent for firs half of 2019-20 and 7.3-7.5 per cent for the second half - with risks somewhat tilted to the downside", RBI had said in the monetary policy statement.

The near collapse of manufacturing growth at 0.6% in the June quarter against 3.1% growth in the preceding three months also reveals the dismal state of the industrial sector. The less-than-anticipated GDP growth rate puts further pressure on the Modi government to announce meaningful reforms that can bring back the economy on growth trajectory.

Last week, the first stimulus package was announced that included reduction of taxes, improvement of liquidity in the banking sector (formal and shadow), increased government spending on auto and infrastructure, and accelerated refunds of Goods and Services Tax (GST).

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Private final consumption expenditure saw a flat growth and rate stood at 55.1 per cent as against 56.1 per cent, while government final consumption expenditure grew fairly robust at Rs 4.22 lakh crore from Rs 3.88 lakh crore, with its rates remaining flat at 11.8 per cent.

One of the reasons behind the huge slump in the economy is the weak consumer demand and dip in private investments.

So far, RBI has cut interest rate by 110 basis points this year. Investments (gross fixed capital formation) grew at 4 per cent, reflecting poor sentiment among investors and big companies. "There are both structural and cyclical issues are plaguing the Indian economy".

However, mining sector growth climbed to 2.7 per cent from 0.4 per cent a year ago.

Cutting down FY20 GDP growth to 6.7% (six-year low) from its earlier forecast of 7.3%, India Ratings and Research (Ind-Ra) on August 28 said the current fiscal would be the third consecutive year of subdued growth.

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