https://edition.cnn.com/2019/08/30/economy/india-gdp-economy/index.html
New Delhi (CNN Business)India's economic slump risks becoming a crisis, with
growth plunging to levels not seen since Prime Minister Narendra Modi was e
lected in 2014 on a promise to turn the country into a global powerhouse.
Gross domestic product grew by just 5% in the three months to June, accordin
g to government data released Friday. That compares with growth of 8% in the
same period last year. It was also a huge drop from growth of 5.8% recorded
the previous quarter.The latest decline was driven largely by slower privat
e consumption and near stagnation in manufacturing, which was growing by 12%
just a year ago. The rate of growth in agriculture more than halved in the
June quarter.
Falling food prices and construction wages have put India's huge rural popul
ation under stress, and those problems have been exacerbated by a credit cru
nch following the near-collapse of one of India's biggest consumer finance p
roviders in October last year.
Friday's data mean Asia's third biggest economy is now growing at its slowes
t pace in over six years.
It's also the weakest growth rate recorded under Modi, who first swept to po
wer five years ago promising to take India's economy to new heights and crea
te millions of jobs every year.
Why people should not get too worked up about recession fears
Why people should not get too worked up about recession fears
But the downward spiral has now lasted a year, unemployment is at its highes
t level in decades and India faces a steep road to recovery. This year could
see the weakest growth since 2012.
"It is quite possible that India's full-year growth will slip below 6% in 20
19," Priyanka Kishore, head of India at Oxford Economics, wrote in a researc
h note.
Government scrambling
Several sectors of the economy have been struggling in recent months — the
country's automotive industry has already shed hundreds of thousands of jobs
, and consumer goods companies like Unilever (UL) are reportedly slashing pr
ices because of slowing demand.
Since winning re-election by a landslide in May, Modi and his government hav
e scrambled to boost the economy. A week ago, India unveiled tax breaks for
startups, cheaper home and car loans, and an injection of 700 billion rupees
($9.8 billion) into state-run banks, among other measures.
A few days later, the government followed with an announcement that rules on
foreign investment would be eased, opening up India's huge coal industry. I
t also said it would relax local sourcing regulations that have blocked comp
anies like Apple (AAPL) and other global retailers from opening stores.
Another move came Friday just before the dire quarterly growth figures were
released. Finance Minister Nirmala Sitharaman announced that 10 of India's s
tate-run banks would be merged into four to boost lending to business.
"These are positive steps but are unlikely to lead to a swift rebound in gro
wth," said Kishore.
No quick fix
Analysts say a lot more needs to be done.
"[The] government is taking steps to mitigate the difficulties faced by the
economy but these measures will play out only in the medium term," Devendra
Pant, chief economist at Fitch subsidiary India Ratings and Research, said i
n a statement after the figures were released. "There is no quick fix soluti
on to the downturn which has been in the making for past few years."
Modi is getting help from the central bank, the Reserve Bank of India. It ha
s slashed interest rates four times since the start of 2019 — bringing them
to their lowest level in nine years — and earlier this week transferred ex
cess reserves of around $25 billion to the government.
Pant said he expects "at least one more rate cut ... to boost demand."