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India’s Q2 GDP At 4.5%; Hits 6-Year Low

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India's GDP Q2 fell to a 6-year low, as was largely anticipated, raising fears of a prolonged slowdown.

The GDP for the second quarter ending Sept 30, 2019, was placed at 4.5 per cent, the lowest reading in 26 quarters, since 4.3% in January-March 2013. The gross value added was placed at 4.3 per cent, as against a general estimate of around 4.5 per cent.

During the quarter, government expenditure supported growth by growing at 11.6%, while financial services sector grew 5.8%.

 

Joblessness and lack of private sector investment

Private sector investment has collapsed, coupled with job losses is pushing growth lower, while lower farm income is only accentuating the crisis. Flattening core sector growth, falling auto sales and other high frequency core data suggested that the economic growth was falling.

The government in recent times has taken all possible measures, but growth just does not seem to be happening. The government recently slashed corporate tax rates, in the hope that it could spur investment. However, this is unlikely to see a surge in investment demand, given that corporates are unwilling to spend in a poor demand environment.

RBI measures unlikely to help much

It is unlikely that the measures of the RBI like an interest rate cut is likely to propel GDP growth. The real problem is that there is a liquidity problem, demand in the spaces like autos has collapsed, rural wages to continue to be low and acute joblessness is only compounding the problem.

Stock markets continue to remain buoyant

Indian stock markets continue to remain buoyant and are trading at near record highs. This has largely to do with global markets, which have been rallying and solid liquidity across the globe.

"Economic growth may have slowed but there is no recession, there can be no recession," said Finance Minister Nirmala Sitharaman to a discussion on the economic situation in the country in Rajya Sabha earlier this week.

India’s Q2 GDP At 4.5%; Hits 6-Year Low
 

However, if the trend continues it is likely that things may get worse, before they get better.

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