Gross Domestic Product growth falls to 4.5% in Q2 of 2019-20

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News:According to data released by the Central Statistics Office (CSO),India’s Gross Domestic Product(GDP) growth has fallen to 4.5% for the second quarter (July-September) of the year 2019-20.

Facts:

About the slowdown in GDP growth rate:

  • The GDP growth rate has slowed down for the sixth consecutive quarter at 4.5% from 5% in the preceding quarter.
  • The growth is the lowest in six years and three months with the previous low recorded at 4.3% during the January – March 2013.
  • In terms of quarterly growth,India has also lost the tag of the fastest growing economy to China which posted a growth of 6% in the September quarter.

Reasons for growth slowdown:

  • The slowdown in GDP growth happened due to a number of factors including slowdown in private consumption, investment and export.But the key indicator is lack of credit growth and demand in the market.
  • However,only government expenditure has supported the growth by growing at 11.6%.

Steps taken by Government:To overcome the growth slowdown,the government has undertaken a number of measures.

  • It has announced a cut in the corporate tax rate to 22% from 30%.It also lowered the tax rate for new manufacturing companies to 15% to attract new foreign direct investments.
  • It has also taken other initiatives such as bank recapitalization, mergers of 10 public sector banks into four, support for the auto sector, plans for infrastructure spending as well as tax benefits for startups.
  • However, none of these measures directly address the widespread weakness in consumption demand which has been the chief driver of the economy.

Implications of growth slowdown:

  • The slowdown in the economy is expected to adversely affect income growth which in turn would further dent consumption demand.
  • The decline in household savings and lower buoyancy in government’s revenue collections will also lead to a limited fiscal space to spur economic growth.
  • Hence,the continuous slowdown may force the Reserve Bank of India to go for another round of interest rate cuts in its upcoming monetary policy review.