GDP Growth Rate Had Fallen To A 3-Year Low Of 5.7% in April-June
India

GDP Growth Rate Had Fallen To A 3-Year Low Of 5.7% in April-June

The GDP growth rate had fallen to a three-year low of 5.7% in April-June quarter. The government indicated on Wednesday that it might come up with a booster shot for the economy, with the focus on reviving a few sectors.


The GDP growth rate had fallen to a three-year low of 5.7% in April-June quarter. There are clear indications of an economic slowdown caused by weak private investment, which in turn has slowed down job creation.

Finance minister Arun Jaitley hinted that steps might be taken after consultations with Prime Minister Narendra Modi. He did not elaborate any further. “We have noted all the economic indicators. This government has been proactive on reforms. Over the last two days, I have had a series of discussions with ministerial colleagues and secretaries. The minister said, “the government will take additional measures in the coming days after consulting PM.” Arun Jaitley almost ruled out cuts in taxes on petrol and diesel, arguing that the government needed funds to meet its spending requirements. Besides, in his assessment, the price spike is temporary.

Jaitley met commerce and industries minister Suresh Prabhu, railways and coal minister Piyush Goyal and NITI Aayog vice-chairman Rajiv Kumar on Tuesday evening to discuss possible measures to prop up the economy. Soon after moving to the commerce ministry, Prabhu had said a fillip to exports could spur manufacturing by increasing the low capacity utilisation.

For a few quarters now, several banks and companies are in the grip of what is called the “twin balance sheet problem” in which banks are saddled with large non-performing assets and firms have leveraged (large loans) balance sheets.

Sources in the government and economists, however, cautioned against a spending spree given the uncertainty over tax collections. Unless, of course, the government decides to overshoot the fiscal deficit target for the year (3.2% of GDP). “There is little support from monetary policy (Reserve Bank of India not lowering interest rates) so we have to rely on fiscal policy to deliver the results,” said a source. While direct tax collections have been rising, the implementation of goods and services tax (GST) is still to stablise. This means government cannot accurately assess the indirect tax collection.

While earnings from disinvestment are better than last year, it will only be able to make up for a part of the shortfall from other sources such as funds from the auction of telecom spectrum. With GST, the government cannot tweak tax rates as frequently to boost demand as it did soon after the 2008 global financial crisis.

Print Friendly, PDF & Email

Leave a Reply

Your email address will not be published. Required fields are marked *