All sectors of the Indian economy are in danger: Read Here

GDP growth
All sectors of the Indian economy are in danger

India’s real or inflation-adjusted gross domestic product (GDP) grew at 5 per cent in the June 2019 quarter of the financial year 2019-20 (Q1FY20), the slowest growth in six years (25 quarters). In nominal terms, the growth stood at 7.99 per cent, lowest since December 2002.

A cyclical slowdown is a period of lean economic activity that occurs at regular intervals. Such slowdowns last over the short-to-medium term and are based on the changes in the business cycle.

Almost all Indian sectors including auto, manufacturing, agriculture, FMCG, real estate and construction have slumped badly, and official data released by the National Statistics Office (NSO) confirm that. Weaker consumer demand and slowing private investments are the two key factors behind the ordeal of core Indian sectors, many of which have openly come out openly with S.O.S signals. Meanwhile, eight-core sectors have registered negative growth of just 2.1 per cent in July, compared to 7.3 per cent in the corresponding month a year ago. All of these indicators also explain the reason behind the recent jump in job losses. According to the Centre for Monitoring Indian Economy (CMIE), overall unemployment in India has now touched 8.2 per cent, with the urban figure as high as 9.4 per cent.

Meanwhile, the Indian rupee has again become one of the worst-performing Asian currencies after depreciating 3.65 per cent against the dollar in August. This, too, is the steepest decline in the Indian currency in the last six years. The value of the rupee has hit Rs 71.98 against the dollar at present. According to global brokerage firm Nomura, weakness of the rupee is a reflection of the underperformance of high-yielding emerging markets foreign exchange, weakness in equities and recent policy actions.

Savings by household sector – which are used to extend loans for investment — have gone down from 35 per cent (FY12) to 17.2 per cent (FY18). Households, including MSMEs.

The household sector, which is the biggest contributor to the total CAPEX in the economy, invests nearly 77 per cent in the real estate sector, which has lost steam since the demonetization.

Analysts say under the current macro environment, monetary policy seems to be less effective than fiscal policy as ‘improper transmission mechanism’ fails to pass on benefits to the real economy.

The Reserve Bank of India (RBI) highlighted a broad-based cyclical downturn in several sectors, including manufacturing, trade, hotels, transport, communication and broadcasting, construction, and agriculture, and called for counter-cyclical actions in terms of monetary and fiscal policies, along with deep-seated reforms for the structural slowdown.

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