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Current Affairs

GDP growth dips to lowest in 6 years

Date: 30 November 2019 Tags: Basics of Economics

Issue

India's annual growth in gross domestic product or GDP fell to 4.5% for the quarter ended September 30, down from 5% in the previous three months and 7% for the corresponding period of 2018.

 

Background

The government has taken several steps, including a big cut in corporate tax rate in September, to boost investments and bolster economic growth. But the economic growth has failed to recover big time.

 

Details

  • According to the data released by National Statistical Office (NSO), the gross value added (GVA) growth in the manufacturing sector contracted by 1% in the second quarter of this fiscal from 6.9% expansion a year ago.

  • Similarly, farm sector GVA growth remained subdued at 2.1%, down from 4.9% in the corresponding period of the previous fiscal.

  • Construction sector GVA growth too slowed to 3.3% from 8.5% earlier. Mining sector growth was recorded at 0.1% as against 2.2% contraction a year ago.

  • Trade, hotel, transport, communication and services related to broadcasting growth was also down to 4.8% in the second quarter from 6.9% a year ago.

  • On the other hand, public administration, defence and other services reported improvement with an 11.6% rise during the quarter under review from 8.6% a year earlier.

  • India's fiscal deficit in the first seven months through October stood at ?7.2 lakh crore, or 102.4% of the budgeted target for the current fiscal year.

Reasons

  • The credit market has been in tatters after IL&FS collapse. The NBFCs that lend to companies have stopped lending to wholesale segment.

  • The commercial banks have reduced their lending significantly due to accumulating bad loans.

  • The growth in collections from Goods and Services Tax and Direct Taxes has reduced for the full year, the Central government has been staring at a shortfall of a Rs 2.7 lakh crore in 2019-20.

Measures

Government spending can create demand in the market and boost consumption. The increased consumption pattern is set to help manufacturing sector to recover.